President Obama on *Average is Over*

by on October 1, 2013 at 8:07 am in Uncategorized | Permalink

NPR’s Steve Inskeep: The economist Tyler Cowen was on our program the other day. He’d written a book about income inequality. And he argued, based on his analysis, that it’s really inevitable, it’s going to get worse, and the thing for public officials to do is to adapt to it rather than try to change it.

Obama: Well, I don’t accept that. America is, always [has] been, at its best when everybody who’s willing to work hard has a chance to succeed. There is no doubt that these trends are powerful and they’re global. I mean, we’re seeing the same trends in Scandinavian countries that historically were — prided themselves on great equality. We’ve seen it magnified in less developed countries and emerging markets. So these are global trends that we’re going to have to fight against.

But if we are educating a workforce that has the skills they need to compete, if we have a tax system that is fair and not rewarding those who can afford high-priced accountants and lawyers, if we are rebuilding our infrastructure in this country, not only to make us more competitive but because those create jobs that can’t be exported, if we are increasing a minimum wage so that it is reflective of the same purchasing power that existed many years ago, if we’re creating more ladders of opportunity for people who are locked in neighborhoods that have been abandoned and small towns where factories have closed — if we do those things, then we can lessen the impact of these broader market forces.

But what is true is that globalization and technology are a mixed bag. On the one hand, they create a situation in which consumer goods are cheap and they create a situation in which we can have access to goods and services that we would never have had before. On the other hand, it does create a situation in which a lot of the jobs that are created are at the very top, high-skilled, you know, creative work that can’t be replicated, or at the bottom, low-skilled jobs. What we don’t have are those jobs in the middle that we have to really focus on building, because we can outcompete anybody when we have smart policies.

His answer is good.  The link and complete dialogue (mostly about the government shutdown) is here.

1 Furloughed Fed October 1, 2013 at 8:29 am

Seems that he’s realistic about the nature of the modern economy, yet explains his world view on how to adapt to it.

2 Chip October 1, 2013 at 5:55 pm

Im struggling with TC’s comment that this was a good answer.

1) Obama wants a simpler tax system while doin the most to complicate it.
2) more money thrown at a failed education system
3) more infrastructure when more money (ie, drbt) is instead allocated to entitlements
4) higher minimum wage

A good answer doesn’t include doing more of the same.

But if you read closely enough, you see what Obama really meant:

“— if we do those things, then we can lessen the impact of these broader market forces.”

3 Steve Sailer October 1, 2013 at 6:04 pm

Too bad about all those average Americans.

Fortunately, we better sort of people have decided our higher form of ethnics proves they should mean nothing to us relative to anybody in the world.

4 lemmy caution October 1, 2013 at 7:41 pm

” On the other hand, it does create a situation in which a lot of the jobs that are created are at the very top, high-skilled, you know, creative work that can’t be replicated, or at the bottom, low-skilled jobs. What we don’t have are those jobs in the middle that we have to really focus on building, because we can outcompete anybody when we have smart policies.”

Isn’t this part all about average americans.

5 Chip October 1, 2013 at 8:43 pm

He keeps talking about smart policies yet the US is failing on almost every front, while Germany has surpluses, the UK recovers and plans a surplus, Canada dramatically cut its debt and others like Sweden drift toward privatization and freer markets.

US success in recent years has all occurred outside and often despite govt – shale oil, tech, private rocket companies etc.

The only smart policy is to get out of the way.

6 JRM October 3, 2013 at 4:31 pm

I don’t see it that way at all. If you look at this recession vs that early last decade, the primary gap in GDP and employment is due to the lack of gov’t expansion. The stage for private industry growth hasn’t changed, and is responding healthily, but in neither case as strongly as before gobalization, for reasons that are exogenous. Gov’t spending has slowed to almost zero growth for the past 5 years – the first time in over 50 years we’ve seen this level of restraint – which is hindering our current recovery (GDP/employment), but under your apparent belief system would be helping to set the stage for growth several years down the road. I think there are trade-offs there, but that’s a really long post. In any case, the deficit is dropping fast, and as GDP picks up there is a chance for a balanced budget with the next 5 or 10 years (which nobody foresaw 5 years ago.) I’m not sure what your real complaint is or how the US is ‘failing’ in any way that’s substantively different than the past century, which has been far more turbulent than most people realize. You seem to be looking for facts to support an argument (?)

7 qman October 3, 2013 at 8:03 pm

@Chip- Interestingly, all of the countries you listed as being successful have some form of public healthcare. The UK has a publicly funded healthcare system (the NHS, NHS Scotland, and HSCNI), Germany has a universal healthcare system with compulsory insurance below a certain income level, and Canada has an almost entirely free (of course paid for in taxes) and universal publicly funded healthcare system. When you say that, the government should “get out of the way,” perhaps you mean that the government should play an active role in ensuring that the populace is safe and that markets (including financial and healthcare) should be regulated to a reasonable degree.

8 prior_approval October 1, 2013 at 8:46 am

That man is likely to get a high paying job motivating people – he really seems to have a knack for it, doesn’t he?

9 Cliff October 1, 2013 at 8:58 am

Maybe he could motivate Congress to pass a budget

10 mjw149 October 1, 2013 at 10:15 am

I’m curious, how do you get people who were elected to fight the United States government to fund it properly? They don’t want to tax people with money. Or corporations. They don’t want to fund anything that isn’t related to the military or spying. Are you suggesting military action against Congress? What other motivation is possible? NSA blackmail?

11 dearieme October 1, 2013 at 10:40 am

Avoiding the proper funding of government was the whole point of setting up the United States in the first place. Do you want them to be untrue to your origins?

12 Spencer October 1, 2013 at 11:04 am

NO.
The US was established to avoid taxation without representation, not just to avoid taxes.

13 Andrew' October 1, 2013 at 11:56 am

“how do you get people who were elected to fight the United States government to fund it properly?”

You get them to cut spending.

“The US was established to avoid taxation without representation”

That’s probably a fancy way of saying “cut spending.”

14 mulp October 1, 2013 at 1:45 pm

“Avoiding the proper funding of government was the whole point of setting up the United States in the first place. Do you want them to be untrue to your origins?”

You are joking, right? Or are you just ignorant about US history?

Tell us, what is the first enumerated power of Congress?

Do you understand that Congress did not have the power to tax in 1787, and thus went into SECRET meetings to address that lack of power?

Do you understand the actual context of “the tree of liberty is watered by the blood…”?

Do you understand that forms the basis of the second enumerated power of Congress?

The Tea Party wing of the Republican Party and a large number of conservatives have been for decades rejecting the first and second enumerated powers of Congress.

Reagan is called a conservative favoring small government, but under Reagan, the last priority of his advisors was the first part of the first power of Congress: tax to pay debt. Instead they argued that the second power of Congress be used to cut taxes with the goal of destroying the good credit.

The Tea Party faction is today arguing and has been arguing that the Congress default on its debt in a repudiation of the second enumerated power of Congress.

The Continental Congress did not have the power to tax, but the reputation of the men representing the rebelling legislatures was initially sufficient to borrow by printing promissory notes to pay soldiers and suppliers. And their reputation, plus self interest in harassing Britain enabled borrowing from France.

But by 1786, that ability to borrow was gone and the men of the Continental Congress understood that Britain would return to reclaim their colonies and now Congress lacked the means to defend.

Danial Shays is the real example of a veteran patriot who was “spat on”. He had served Gen Washington and returned home disabled to have his property taken because his pay was not accepted by the bankers and tax collectors who were free of Britain because of his service and the others he rallied.

Shays rebellion and others like it and the looming threat of Britain and the fragmentation of the states could only be addressed of Congress had the power to tax, to pay debt, to defend, and provide for the general welfare.

The United States of America was founded on the power to tax, and the power to borrow on the good credit that power to tax afforded Congress.

If the people of 1790 did not want taxes, they would have stayed with the Continental Congress which operated more like a charity, operating on voluntary contributions.

15 John Thacker October 1, 2013 at 11:45 am

It’s the Senate that’s refused to pass a budget for years.

The Senate doesn’t like to pass anything, but they don’t like anything that the House does.

16 alkali October 1, 2013 at 12:56 pm

The Senate passed a budget for Fiscal Year 2014 on March 23, 2013. Google “S. Con. Res. 8” to find it.

17 John Thacker October 1, 2013 at 1:38 pm

S. Con Res. 8 includes repealing the Medical Devices Tax, as you can see here. The amendment repealing the Medical Devices Tax passed 79-20.

Yet I see that Majority Leader Reid and President Obama refuse to accept any CR that would repeal that tax. So obviously S. Con. Res. 8 isn’t an acceptable basis for negotiation for the Democrats, either.

In practice, it’s a budget resolution that’s supposed to set the overall funding level, but it’s not the appropriations bills. I should have been more precise when I said “budget,” but passing the budget resolution alone isn’t passing the entire budget.

18 mulp October 1, 2013 at 2:04 pm

On that basis, the House hasn’t passed a budget either for a number of years.

The problem is a minority of Congress is blocking voting on passage of bipartisan bills because they object to the bipartisan bills because they would pass if voted on.

In the Senate, this is done by blocking cloture on every action of the Senate so merely considering a bill requires 48 hours notice and then 60 votes just to advance the bill one step.

In the House the same thing is being done by the Speaker acting only in the interests of his caucus and refusing to allow any bill that will pass if voted on to be brought up for a vote.

The clean CR passed by the Senate would have passed by at least 300 votes on Monday is the Speaker had brought it to the floor. All the Democrats and an initial dozen Republicans would have voted for it and that would have triggered an avalanche to pass it as Republicans flooded in to avoid taking the blame for passing something half the Republican caucus wants to pass.

The Tea Party caucus is demanding that all bills in the House pass solely on Republican votes with no Pelosi Democrats having any say. That requires that every bill pass the House with 95% of the votes allowed to determine passage – only Republicans. That is more dysfunctional than the 60% in the Senate.

19 John Thacker October 1, 2013 at 2:17 pm

In the Senate, this is done by blocking cloture on every action of the Senate so merely considering a bill requires 48 hours notice and then 60 votes just to advance the bill one step.

In the House the same thing is being done by the Speaker acting only in the interests of his caucus and refusing to allow any bill that will pass if voted on to be brought up for a vote.

The Senate Majority Leader does the same thing as the Speaker in refusing to allow bipartisan amendments to be considered. The Medical Devices Tax repeal passed 79-20, but it has zero chance of becoming law because Sen. Reid opposes it.

Senator Coburn’s amendment to reduce Essential Air Service was accepted (i.e., not tabled) 65-34, on a bipartisan vote with all Republicans joining a little more than one-third of Democrats, but again it didn’t become law because Reid (and Boxer and Rockefeller, who strongly opposed it) refused to allow it to be incorporated into the FAA reauthorization, since it didn’t have the support of a majority of the Democratic Caucus, only 65 members of the Senate. Majority Leader Reid even got Sen. Leahy to vote *against consideration of his own PATRIOT Act reform amendment* when it came up to reauthorization (the rule did not allow consideration of Leahy’s amendment), on the basis of party loyalty.

That is, as you say, even more dysfunctional than just requiring 60 votes. But it is, however, what happens in the Senate as well. In the Senate, Harry Reid is more dysfunctional than the filibustering Republicans.

20 John Thacker October 1, 2013 at 2:23 pm

Similarly, a vote on speeding approval of Keystone XL would be bipartisan and with a large majority in the Senate, but again Leader Reid won’t let it come up for a vote. There are undoubtedly many other bills that could get bipartisan majorities, but, just like in the House, the Senate Leadership refuses to allow them to be considered.

A lot of that is how parliaments works, and why parties are formed. It’s absurd to pretend that the Senate isn’t doing that.

21 John Thacker October 1, 2013 at 2:30 pm

“We know that we have the votes here in the Senate; we certainly have the votes in the House,” [Sen. Heitkamp (D-ND)] told USA TODAY on Thursday. “In fact, I think we could build enough votes to override a veto.”</blockquote.

But of course the Senate has refused to debate or take up the issue, precisely because it would pass with a wide bipartisan majority, but a minority of Democrats. (Of course she doesn't want to link it to other issues, because she has some party loyalty, but she would like this to be addressed.)

And on all those issues, the Republicans would love to get Democratic votes– and in the House they've gotten a few dozen on issues like authorizing the delay the employer mandate that the Obama Administration is doing anyway, or in delaying the individual mandate to go along with it. They just, of course, want the bills to be as they want them, just as the Democrats do vice versa– the Republicans complain just as much that Democrats don't want them to help write the bills, only their votes when the Democrats have the majority (whether in the Senate, or when the PPACA was passed.)

There was indeed a lot more bipartisanship in the George W. Bush era. I'm not sure that that recommends it. Admittedly, Sen. Obama wasn't always a part of it, helping to blow up the immigration deal, filibustering judges, and making symbolic votes and speeches against the debt limit. He did vote for the energy bills, though.

22 Chip October 1, 2013 at 8:47 pm

How do you reconcile your Tea Party = support for spying with the fact that TP members like Rand Paul are the most vocal critics of the NSA?

The extent of knee jerk emoting that passes for thinking on this site is really quite remarkable.

23 prior_approval October 1, 2013 at 10:45 am

Strangely, he doesn’t need to motivate a certain group congressional members, as that group is demonstrating to the rest of us that some people require no external motivation to politically self-destruct in full public view. They should have asked Gingrich how that works, or any of the other survivors of Gingrich’s glorious ride into political defeat, but none of them seem to be able to motivate their caucus colleagues to avoid squandering whatever political capital they imagine they possess.

Shame that they are also bringing down the reputation of the United States with them. But then, it has been a while since the U.S. possessed the sort of international stature it did during the years the worst American president in history, at least according to some, was running it – but Jimmy Carter was a generation ago.

24 TMC October 1, 2013 at 11:16 am

Gingrich? He was the last fella to balance the budget, right?

25 Jan October 1, 2013 at 9:13 pm

Nah, Bill Clinton.

26 TMC October 2, 2013 at 12:46 pm

President creates law now? Interesting.

27 JRM October 3, 2013 at 4:41 pm

Gingrich had nothing to do it it. Clinton’s plan, which was the origin of what got passed, was in its entirety more aggressive than any Republican plan at the time, though of course priorities differed. The budget of that time also had the dot.com boom fueling it – one of the easiest times in history to balance a budget. So I give a little credit to the Democrats, but none in particular to the Republicans.

28 Bernard Guerrero October 1, 2013 at 11:37 am

I, for one, have always been impressed by Carter’s willingness to deregulate. :^)

29 Andrew' October 1, 2013 at 8:51 am

“if we have a tax system that is fair and not rewarding those who can afford high-priced accountants and lawyers”

Well, that would be called a flat tax.

30 Andrew' October 1, 2013 at 8:55 am

Which brings up another point. A lot of these wonderful middle class jobs are not needed and borderline rent-seeking. We can repurpose a lot of accountants and lawyers (and doctors and professors). So, eliminating middle class jobs is not all bad.

31 Cliff October 1, 2013 at 8:57 am

Doctors, professors and lawyers are not middle class jobs

32 Andrew' October 1, 2013 at 9:57 am

Upper middleish. They also aren’t the only thing I’m referring to of course as brain surgeons probably aren’t middle class and also aren’t rent seeking. Doctors and lawyers that can easily be replaced by their associate degreed assistants often qualify on both counts.

33 prior_approval October 1, 2013 at 10:47 am

GMU professors are most definitely middle class (the Commonwealth has never been a generous employer) – unless they have a side gig or two.

34 Andrew' October 1, 2013 at 12:00 pm

The upper-class professors are likely the tenured superstars. There is a good 10 years or so where even those could be doing the poverty-line dance.

35 mulp October 1, 2013 at 2:26 pm

“So, eliminating middle class jobs is not all bad.”

Because the way to increase growth in production is to cut middle class consumption to low wage consumption because capital parking trillions in patent tax havens will boost Federal and other government debt to expand the welfare state and expand consumption???

Economics is zero sum: labor plus capital equals production equals labor consumption plus capital consumption equals consumption.

If capital does not consume all the burger the burger robots make, then capital must pay to build the bridges so the labor producing the bridges get paid enough to buy all the burgers the robot capital is making.

The tax cuts have not led to capital which has gained the most benefit going out and investing more wisely than government in bridges so the number of bridges that fail or have their capacity reduced or are simply closed to traffic is increasing, with capital lobbying Congress to borrow the tax cut profits of capital and spend it on bridges the capital needs to profit.

Reducing middle class wages to low wage cuts tax revenue which cuts the money government can use consuming for building bridges. A low wage worker who can’t afford a car pays no gas taxes, but the imported food and clothing he buys does need those bridges to be delivered to a Wal-Mart near him.

36 Andrew MacDonald October 1, 2013 at 9:08 am

Flat tax is a red herring. A 5-bracket income tax isn’t any easier to game than a flat tax. I assume what he’s talking about are all the deductions, which is an orthogonal issue to whether a tax system does or does not have brackets.

37 Rahul October 1, 2013 at 9:48 am

What about distortions? People just above or below a bracket might be modifying their earning behavior in subtle ways?

Also, given that we are stuck with deductions, a flat tax induces less distortions than brackets.

38 Dan Weber October 1, 2013 at 10:06 am

That isn’t how brackets work, unless people are incredibly stupid, in which case the answer is to hit them over the head about marginal tax rates until they get it.

Brackets do have some issues: it gives people levers to say “let’s raise taxes on them while we lower taxes on us.” You could defend against that as usefully as you defend against deductions.

Right now our welfare state is scattered over dozens or hundreds of places. If it was all in the tax code, we could avoid having ~100% marginal tax rates like we do now. And brackets don’t really change that.

39 Jan October 1, 2013 at 10:15 am

If moving to a higher tax bracket meant that all your income is taxed at the higher rate, I’d tend to agree. But as it is, an increase in income only means that the share of your pay above the higher tax bracket threshold is taxed at the increased rate. Between brackets, this is only usually a 3-5% increase in tax rate. I’d be hard pressed to find someone who is going to turn down a $20,000 increase in salary because that portion of his income is taxed at a 3% increased rate.

It seems to me taking advantage of the totally legal deductions and loopholes system has the much bigger impact.

40 Finch October 1, 2013 at 11:02 am

People don’t turn down $20k for the same work. People decline to do what’s necessary to move from $200k/year to $400k/year, because they’d only get to keep half the gain. This is a big part of what people mean when they say “it’s not worth it” when talking about a promotion, a job at an ibank, a move to New York, etc. (Besides taxes, probably the other big component of that statement is time and aggravation.)

I’m less how often this happens when it’s a $50k/year factory worker considering a $58k/year supervisors job, but it’s commonplace in professional settings where tax rates are punitive.

41 Finch October 1, 2013 at 11:04 am

Egad. Corrections below:

People don’t turn down $20k extra per year for the same work. People decline to do what’s necessary to move from $200k/year to $400k/year, because they’d only get to keep half the gain. This is a big part of what people mean when they say “it’s not worth it” when talking about a promotion, a job at an ibank, a move to New York, etc. (Besides taxes, probably the other big component of that statement is time and aggravation.)

I’m less sure how often this happens when it’s a $50k/year factory worker considering a $58k/year supervisor job, but it’s commonplace in professional settings where tax rates are punitive.

42 Jan October 1, 2013 at 11:29 am

Could be plenty of people don’t move to new jobs for lots of reasons. But there is not a situation where they would only get to keep half the gain due to income taxes. Marginal tax rates range from 25% to 39.5%, for a middle class family to that of the highest earners (like $400k+). Please explain what you mean.

43 Finch October 1, 2013 at 11:51 am

> Please explain what you mean.

Are you asking me to explain how taxes work and that federal income taxes are not the only taxes people face? Or are you asking me to explain something else? Are you quibbling that 57%, or whatever it is in your state, is not half?

I was just trying to explain how people think about taxes, and I’d agree that they are sensitive to the difference between keeping half and two-thirds of their incremental pay. But you originally ignored that people are faced with a choice of doing or not doing something to get that money – there’s a cost to go with the benefit, a cost of time and effort and aggravation and risk. So it’s not that the tax rate doesn’t matter because, hey, more money! It’s that the tax rate reduces the amount of money you weigh against what you have to do in the new job. If it was just a question of accepting more money for nothing, obviously you’d take the money irrespective of the tax rate. But that’s not reality.

44 Jan October 1, 2013 at 12:39 pm

Apologies, I assumed you were talking about a _marginal difference_ in taxation as the reason someone wouldn’t take a better paying job (see Rahul’s original comment). If you’re saying that someone has to think about what their post-tax (fed, state, local) increase in income would be when considering a different job, as opposed to just looking at the differences in total salaries, I totally agree.

I am saying that those marginal increases in tax rates on the new income are really pretty small differences — I don’t think whether one is moving to a new bracket often weighs heavily in the calculation to take a job or not. Even in the most extreme example, people might face a 10% rate increase at the federal level. In states, differences between tax brackets are usually much smaller.

45 Brandon October 1, 2013 at 5:47 pm

Finch, can you provide any real examples of people turning down a job with a 100% pay raise because of taxation?

46 Dan Weber October 2, 2013 at 9:16 am

100% raises are pretty rare in any case, and it’s not like there is a public database of what raises people are offered.

Although people have written a lot about the poverty trap. Here’s one showing a worker who could somehow jump from 20K to 40K would have about the same take-home income: http://gregmankiw.blogspot.com/2009/11/poverty-trap.html

47 Finch October 2, 2013 at 9:19 am

> can you provide any real examples of people turning down a job with a 100% pay raise because of taxation?

I don’t know what you do, maybe this is different in easy jobs, but here people step off the fast track all the time. Taxation, by halving the reason to work harder, is the most important factor in that. I’m not saying people do it only because of taxation, I’m saying they’d do it at roughly half the rate without that factor.

48 Andrew' October 1, 2013 at 9:58 am

That is, as I’ve said, 3/4 of what people mean when they say flat tax.

You can have a flat progressive tax. All it requires is that your world-view is rather askew.

49 Andrew' October 1, 2013 at 10:00 am

As an aside, why do people always get hung up on the stupid mundane details?

By the way, what we have right now is nearly a ludicrously expensive and difficult to administer net flat tax.

50 Andrew' October 1, 2013 at 10:02 am

On second thought, forget I said anything.

51 Alexei Sadeski October 1, 2013 at 10:20 am

Every single flat tax proposal I’ve ever seen is progressive.

52 Willitts October 1, 2013 at 12:42 pm

Don’t you think that the degree of progressivity matters?

Most flat tax ideas I’ve seen have a generous exemption of income at the bottom. This would make any system with a proportional tax above that threshold a “progressive” system, but only in the strictest of terms. We could have a strictly proportional tax and a simultaneous transfer payment to the poor and it would be identical.

People who propose a flat tax dislike both the redistributive nature and the distortions in the labor market. Their proposals reduce both of these concerns irrespective of whether they are progressive by definition.

53 Chris S October 1, 2013 at 1:00 pm

Sure, if you forget about the declining marginal utility of income.The 1,000,001th dollar != the 10,001th dollar and they should not be taxed as if they ==

54 Andrew' October 1, 2013 at 3:10 pm

And I do.

In fact, if the government were anywhere near as productive as the rich, maybe the poor should be taxed more.

Fortunately, we’ll never have to get past the thought-experiment on that one.

55 Phill October 1, 2013 at 1:51 pm

Nonsense. The opacity of the tax system is a function of poor user interface design coupled with special privileges.

Most useful deductions aren’t available to people who work regular jobs.

56 Spencer October 1, 2013 at 2:05 pm

Not necessarily. The complications in the tax code are in determining what is income and what is exempt income. Apply multiple tax rates is not much more complex than applying a single tax rate. In both cases you just look up the answer in a table.

A flat tax probably would not make any difference in the number of tax attorneys and/or accountants.

57 Andrew October 1, 2013 at 3:14 pm

Again, 3/4 of what people mean by “flat tax” is elimination of all the deductions.

58 Andrew' October 1, 2013 at 3:14 pm

Anyone else?

59 Andrew' October 1, 2013 at 3:22 pm

As an aside, it’d be nice to not have to argue basics with smart people.

Whatever gets Mitt Romney to a 14% effective tax rate, just give me all that minus the accountants and lawyers.

The rest ain’t my fukcing job.

60 mike October 1, 2013 at 4:30 pm

A lot of people who don’t understand the tax code think that it’s complex because there are lots of loopholes and distortions. In reality, the tax code is complex because simple-looking tax rules create a lot of loopholes and distortions, and the complexity results from trying to eliminate those loopholes and distortions. Yes, there are some provisions that are deliberately designed to create tax incentives, but they do not account for the bulk of the complexity.

61 Andrew' October 1, 2013 at 8:02 pm

Then fix that too.

62 Brandon October 1, 2013 at 5:46 pm

I’ve never seen that definition of a flat tax before. I’ve always seen it to mean a single tax bracket, sometimes mixed with an EITC-like subsidy.

63 Andrew' October 1, 2013 at 8:00 pm

Y=MX+b
There.

64 Michael Hamilton October 1, 2013 at 8:51 am

“I understand his view, can explain why it is true, agree with it, but I won’t accept it.”

65 Dan in Philly October 1, 2013 at 10:13 am

That’s what I got out of his answer. He’s basically agreeing with Tyler, which may be why his answer is deemed “good” 🙂

66 Chris S October 1, 2013 at 1:04 pm

I agree with that interpretation if “but I won’t accept it” does not mean “I will not agree that these consequences logically follow” but instead “I will not stand flat footed to these trends; instead I will attempt to adapt”

67 mark October 1, 2013 at 8:58 am

I would say his answer is better than I expected, mainly due to the last paragraph. But an answer that argues raising the minimum wage is going to offset globalization is not a good answer. Partial credit.

68 Rahul October 1, 2013 at 9:51 am

I was confused by his “increasing a minimum wage so that it is reflective of the same purchasing power that existed many years ago”.

What exactly is the purchasing power bit?

69 Andrew M October 1, 2013 at 10:37 am

I think he’s saying that he wants the minimum wage to be as high as it used to be in real terms. According to this ( http://www.fas.org/sgp/crs/misc/R42973.pdf ) the current minimum wage would need to be raised by $2.87 to represent the same real minimum wage in 1968. The nominal value of the minimum wage has increased by $5.65 since then, but inflation has increased more so the real value has decreased.

70 Rahul October 1, 2013 at 12:20 pm

Gotcha! Thanks!

71 Andrew' October 1, 2013 at 3:58 pm

That’s what he’s saying. Terrible policy advice. Good politics. Bad thing to do, good thing for him to say.

72 Dan Weber October 1, 2013 at 10:13 am

If we are seeing a bathtub effect, with people being either very high earners or very low earners, jacking up the minimum wage seems especially dim. Redistribution is much simpler, and while it does distort the employment market, at least it doesn’t price a whole class of people out of the job market.

Of course, one of the reasons to keep people in the job market instead of sitting at home collecting checks is that they can climb the wage ladder while working. That reason may be obsolete if Tyler’s thesis is true, since there would be a dearth of jobs for them to climb into.

73 mjw149 October 1, 2013 at 10:18 am

Minimum wage seemed to work in practice in previous decades, and inequality has risen since it was removed (could be spurious, but it’s a complicated thing so you can’t dismiss it so easily). I’m curious why you’re dismissing it. Is it because its effect is diminished without broad union membership?

74 Dave T October 1, 2013 at 8:58 am

Curious if Obama believes our 40% corporate tax rate, the highest in the world, is a “smart policy” that helps us compete.

75 Jan October 1, 2013 at 9:04 am

Nope. This year he proposed lowering it to a maximum rate of 28% and getting rid of certain deductions and preferences to equalize the code across industries.

76 Andrew' October 1, 2013 at 3:58 pm

Nasty Republicans must be blocking that.

77 Jan October 1, 2013 at 4:01 pm

I think they were for it before they were against it. Shucks. Time to shut ‘er down.

78 mike October 1, 2013 at 4:26 pm

I believe he proposed something that could vaguely be described that way, as part of a package with a lot of extremely unpalatable things. Probably for the specific purpose of setting morons like Jan around to claim that Obama wants to lower the corporate tax rate. Kind of like how because one conservative think-tank once proposed a package including an individual mandage as an alternative to a Democratic proposal 30 years ago, and Obamacare contains an individual mandate, therefore Obamacare is a Republican idea in toto and they’re just hypocrites for opposing it.

79 Jan October 1, 2013 at 4:56 pm

Vaguely, or exactly. He proposed it, and was rejected out of hand for 28% not being low enough. Oh, it also proposed a tax on foreign earnings, which, I guess is terrible for America, since it would bring some of that money to this country.

80 mark October 2, 2013 at 4:27 pm

The reason the Administration’s proposal has gone nowhere is that it has been designed not merely to lower the rate, but to increase the revenue from corporate tax collections. So it is difficult to see how it will incentivize corporate sector to produce in the US.

81 Rahul October 1, 2013 at 9:52 am

Have we actually seen a flow of corporate HQs migrating abroad?

82 Alexei Sadeski October 1, 2013 at 10:21 am

It’s illegal to do that, so you wouldn’t see that anyways.

83 Rahul October 1, 2013 at 10:31 am

How did Seagate, Halliburton & Accenture pull it off? Loopholes?

84 Alexei Sadeski October 1, 2013 at 11:15 am

Halliburton is incorporated in the US.[1]

Accenture was never a US based company, according to the GAO.[2]

It appears that Seagate was never incorporated in the US.[3]

[1]http://en.wikipedia.org/wiki/Halliburton

[2] http://en.wikipedia.org/wiki/Accenture#Bermuda_headquarters

[3]http://www.storagenewsletter.com/rubriques/business-others/seagate-hqs-to-move-in-dublin-ireland/

85 Rahul October 1, 2013 at 12:28 pm

@Alexei

You are right. Very interesting. Thanks!

86 Bill October 2, 2013 at 2:23 am

Alexl, place of incorporating is irrelevant, and reflects a profound misunderstanding of tax law.

87 Noah Yetter October 1, 2013 at 9:22 am

“His answer is standard, meaningless political dreck. Really god-awful.”

Fixed that for you.

88 Jan October 1, 2013 at 9:55 am

What do you think a good answer would have been?

89 Andrew' October 1, 2013 at 12:00 pm

“I haven’t read the book, where do I buy it?”

90 Neal October 1, 2013 at 10:12 am

His answer is the best standard, meaningless political dreck you could possibly get out of a highly constrained national politician.

91 clazy8 October 1, 2013 at 10:33 am

He chose his constraints. In fact, he cherishes them, which is why he pretends they are immutable, like the will of God.

92 Willitts October 1, 2013 at 12:47 pm

Why would anyone believe that a “community organizer” knows anything at all about economics unless he had substantial education or experience with it?

His prior statements about monetary policy were nothing but a regurgitation of the dual mandate.

Instead of electing a president, we ought to collect resumes and hire one.

93 Jan October 1, 2013 at 4:13 pm

Yeah, he probably doesn’t have anyone who works for him to understands economics. It’s called the dismal science for a reason — there are a lot of really smart people on either side of just about every major economic debate.

94 Willitts October 2, 2013 at 1:07 pm

So let’s elect a Chief Economist for the country and stop pretending that this empty suit, supposedly surrounded by smart people, is performing a useful function.

95 Ryan Vann October 1, 2013 at 1:08 pm

Obviously not Obama speaking. The first give away was that he didn’t preface an answer with “uh hello everybuhdee” nor did he mention marrying up, which is clearly the solution to all economic ailments. Lastly, not a single “folks” uttered.

96 Jim Nazium October 1, 2013 at 9:27 am

“… if we are increasing a minimum wage so that it is reflective of the same purchasing power that existed many years ago, if we’re creating more ladders of opportunity for people who are locked in neighborhoods that have been abandoned …”

Hint: if you want more ladders of opportunity in abandoned neighborhoods, don’t raise the minimum wage. See the recent attempt to impose a $12.50 minimum wage in the District or Columbia (but only for Wal-Mart).

97 mavery October 1, 2013 at 10:43 am

Weird to compare a bill targeting specific companies while exempting others to a federal across-the-board change. The DC bill was more of a “screw WalMart” bill than a “help the poor” bill. (Point of fact, it would’ve been very bad for the working poor.)

I generally agree that national minimum wage hikes aren’t great policy but that’s more because cost of living in rural America is vastly different from dense, urban cities (such as DC) where most of the pressure for higher minimum wages originates. The minimum wage is actually an excellent example of a policy best implemented on a local level. If DC had decided to raise minimum wage for ALL workers to say $10, I could probably have gotten behind it.

98 Jan October 1, 2013 at 4:19 pm

Good point. I never got why minimum wage wasn’t adjusted to the local CPI or something like that. It doesn’t make any sense when some places have literally double the cost of living as others, but share the same minimum wage requirements.

99 JRM October 3, 2013 at 5:05 pm

You could approach taxes the same way, but I think you’d end up with even more complexity, as everyone pushed every gray section of the law to try to manimize their own liability (taxes) or income (min wage). Besides any COL measurement would depend heavily on your basket of goods… and two people at two income levels in the same place can have a wildly different COL based on their lifestyle and spending choices.

100 michael October 1, 2013 at 5:27 pm

yeah, I hate ladders with the bottom few rungs removed…

101 magilson October 1, 2013 at 9:42 am

At best he proved your point, Tyler. I still haven’t figured out why, over the last year, you’ve granted certain leniency on certain people who make arguments so incredibly bad compared to the others you openly tear apart here. It’s been interesting to watch happen, though.

1. He observes correctly it’s a global problem. So it should be pretty clear that one cannot simply choose policies that other countries have been using if they, too, are experiencing these issues. So then he goes right ahead and prescribes solutions other countries have implemented which aren’t working for them, either. Perhaps one could argue it’s cultural. That their culture cannot work within that political construct. But to be sure we can is a magnificent arrogance.

“But if we are educating a workforce that has the skills they need to compete” – You just got done telling us the the problem with the water/diamond paradox is a marginal. Pumping out a million new “middle-class” workers a year (by the way, how do you even begin to define the appropriate education that would result in a middle class worker? I’m pretty sure that’s not at all how it works…) doesn’t matter if that’s not what the economy needs. Is this some kind of super weird Say’s Law argument? Because it just doesn’t work like this. At all.

“if we have a tax system that is fair and not rewarding those who can afford high-priced accountants and lawyers” – It’d be great if the guy actually took this goal seriously. But thus far he hasn’t. And he can’t get his party to, either. And he sure as hell has shown zero ability to work with anyone who doesn’t immediately coo over his proposals. So obviously this is a non-serious statement. He’s pandering, even if he really believes it.

“if we are rebuilding our infrastructure in this country” – Anyone still saying this should be immediately ignored. I’ll just forget he mentioned this out of kindness.

“if we are increasing a minimum wage so that it is reflective of the same purchasing power that existed many years ago” – Trickle up is as silly as trickle down. If you’re not creating wealth to generate your wage it’s been unequivocally shown to be bad for an economy. If he believes it, he’s prescribing some bad medicine. And at the same time making his first prescription a lot more hollow. I’m not sure you can believe the one over the other or somewhere you would have to have some wires crossed as to the actual problem at hand.

“if we’re creating more ladders of opportunity for people who are locked in neighborhoods that have been abandoned and small towns where factories have closed” – This is actually a fantastic plan. But he’s never made a move to implement it. He’s never made any statement as to how it would work. And I don’t think, and I’d bet money, that he’ll ever take up this cause. Labor mobility is important. But there are a lot of reasons, a lot of them unrelated to government policy, why that type of “American” is a disappearing breed. He does not favor housing policy that would nudge people in this direction. He does not favor social policies that make this realistic. So, again, this sounds good. But I don’t think he’s actually serious. And his party most definitely isn’t either. Wealth transfers do not (repeat: do not) sufficiently motivate people to change. I hope people can at least agree on that, these days.

His answer is awful. And I can’t figure out, given you didn’t explain at all, how you could possibly believe that. I would genuinely love you to tear into what I’ve said here.

102 Steve J October 1, 2013 at 9:51 am

| “if we are rebuilding our infrastructure in this country” – Anyone still saying this should be immediately ignored. I’ll just forget he mentioned this out of kindness.

Can you explain why government provided infrastructure is so bad?

103 magilson October 1, 2013 at 9:58 am

I did not say it was bad.

104 Steve J October 1, 2013 at 10:12 am

Let me rephrase – what are you trying to say with that statement? It is not clear.

105 magilson October 1, 2013 at 10:16 am

Rebuilding infrastructure is not a serious answer to Tyler’s proposed “Average is Over” problem. It can be worthwhile in support of trade. But I don’t at all see how one can extend that to being a solution to income disparity.

If I’m missing something please clearly lay out the sequence of imaginary events that would take us from a billion dollar bridge to The American Dream.

106 Ryan Vann October 1, 2013 at 1:22 pm

Seemed pretty clear to me. Infrastructure investment isn’t a panacea for the current trends in earning gap, which is mainly a result of extremely low costs of production and distribution, which get exceeding lower as technology advances. If anything, increased infrastructure may just exacerbate things.

107 Andrew' October 1, 2013 at 4:02 pm

If government had any decent general welfare ideas, they’d have pursued them by now.

That is why they are only posturing over the redistributions that are bankrupting them (when they aren’t prosecuting whistleblowers or seeking out foreign wars).

The best case scenario is the government is ready to extract the rents when we get ourselves out of the mess they are making worse.

108 DKF October 1, 2013 at 12:19 pm

Not bad I would say…but I think government’s ability to apply marginal dollars here is suspect–so I’m doubtful of the positive effect. A personal example–I live in a city with roads that, I think, are objectively poor and in need of substantial repair. But, thanks to federal stimulus dollars, I have a smart electricity meter that provides reading every 15 minutes. And, we have a light rail line being built at enormous cost into a section of the city where it is unlikely to be utilized well. I can certainly see that some people will be better off because of these “investments”, but I’m skeptical they will have a broad net positive impact that would affect general trends in income inequality.

109 John Thacker October 1, 2013 at 11:44 am

He has taken action to ensure that poor people who live in bad neighborhoods in DC and elsewhere can’t send their kids to better schools.

110 magilson October 1, 2013 at 11:52 am

Yes, but we all learned from Allison Benedikt that sacrificing *your* kids to these bad schools is in the best, long-term interest of… I can’t remember. The logic was hard to follow. In any case, he’s doing it because he cares.

111 Urso October 1, 2013 at 12:40 pm

What we learned from Allison Benedikt is that some people are willing to write literally anything in order to generate controversy and get clicks, and that it works.

112 Chris S October 1, 2013 at 1:02 pm

Tyler is experiencing awe – the leader of the free world spent three paragraphs specifically addressing a book he wrote.

113 Rahul October 1, 2013 at 9:59 am

It is true that rebuilding infrastructure creates jobs that are less likely to be exported. But what happens once you have the infrastructure? Are the resultant jobs also non-exportable? I doubt it.

e.g. A port / steel-plant expansion project uses local labor but once built how do you induce people to use said infrastructure if it’s 30% cheaper to do the processing elsewhere?

114 Jerm October 1, 2013 at 10:05 am

Are you saying it is good simply because he uses the ol’ “on the one hand/ on the other hand” economist’s trope? 😉

115 magilson October 1, 2013 at 10:17 am

Don’t forget the gipping hand.

116 prior_approval October 1, 2013 at 11:22 am

Rape my lizard, I think you forgot the ‘r’ – or not, as the case may be.

117 magilson October 1, 2013 at 11:28 am

TANJ, I did.

118 S October 1, 2013 at 10:27 am

He forgot the part about unicorns, and fairy poop. Its funny, the one thing he could do he doent even mention.

119 Osman October 1, 2013 at 11:13 am

Professor Cowen! Are you assessing President Obama’s exam paper on globalization and technology by giving him an average grade like ‘good’ in your MRU class? Awesome!

120 Albigensian October 1, 2013 at 11:21 am

There is an oversupply of all but very highly skilled labor here. In a country that already has more low- and mid-skilled labor than labor markets can absorb, how can raising the minimum wage possibly be an answer to anything?

For that matter, how can “more education” be an answer either? Mostly this education will create more people with mid-skills, and release them into a labor market that already has a large oversupply.

Now, government can create jobs- infrastructure jobs, make-work jobs, whatever. Those with large incomes can be taxed to pay for it (unless they’re willing and able to emigrate). So, perhaps that’s what the President is proposing- essentially, Keynsian deficit spending forever.

Although the Keynsian pump doesn’t work as it did in FDR’s time because much of the money pumped into the national economy will be used to buy imported goods- thus adding to the USA’s chronic trade imbalance instead of circulating, and ultimately forcing wage equalization with our trading partners).

Overall this does seem a dismal future- sort of an extended Great Depression, with most of us dependent on some form of government benevolence. In an age of technical stagnation, I suppose we could amuse ourselves with our electronic devices (if the lights stay on).

121 Therapsid October 1, 2013 at 1:11 pm

But one reason there’s an oversupply of low to moderately high skilled labor is because of that technical stagnation. Tyler seems to be throwing in the towel here and in his new book, and unfortunately many of his intellectual allies are too.

A return to high growth rates and high productivity growth rates would make this topical debate fodder for a future PBS period drama.

122 It's Over October 1, 2013 at 11:34 am

Overall good answer for a politician. The part about the fair tax system hilarious. Wonder if Lois Lerner has any thoughts on that?

123 sal October 1, 2013 at 11:49 am

Tyler,

As a devoted follower of your blog, it is extremely annoying when you try to appease your liberal viewers in agreeing with redistributionist policies that have never worked. Trust me that your blog will continue to attract liberal leaning followers because of the diverse content.

124 Chris October 1, 2013 at 1:47 pm

To be honest, I’m not sure what about Tyler’s response to the quoted text was pandering. Based on my reading, Obama’s response hewed very close to the overall message of “Average is Over.” Tyler’s book is certainly more pessimistic about the ability of the government to reduce the influence of “high-priced accountants and lawyers” on income equality but the Obama’s summation of the effects of education and infrastructure were quite close to some of the lessons of “Average is Over.”

The last paragraph of the Obama quote is probably the best short summary I’ve seen of the book’s lessons, in any publication, if you leave out the “because we can outcompete” portion that any organization’s leader is obliged to say.

125 lemmy caution October 1, 2013 at 7:57 pm

In a democracy, redistribution is the inevitable result of high levels of inequality.

Redistribution reduces inequality. That is just math. You can make the argument that redistribution is bad for other reasons, but you have to actually make it.

126 Dead or In Jail October 1, 2013 at 12:14 pm

I found that exchange disappointing. Inskeep didn’t do even a minimally adequate job in summarizing Cowen and Obama refused to wrestle with Cowen side-stepping a basic duty of any minimally adequate President.

127 Master of None October 1, 2013 at 12:16 pm

I am impressed by the President’s answer. I haven’t before seen him give such a complete (with references to data) answer on a deep economic question. This makes me more optimistic.

Oh, and I agree (with Obama and Cowen)

128 lonelylibertarian October 1, 2013 at 12:26 pm

Infrastructure projects like the Keystone Pipeline?

I think Tyler was being too kind in calling this good…

It struck me as a laundry list of things that appeal to his Progressive supporters….

I wonder when we will have an honest discussion of how to deal with an oversupply of college educated young people who have no useful skills – but have a lot of college loans to pay off.

129 Paul October 1, 2013 at 1:39 pm

Lexington in the Economist nailed it:

” Barack Obama calls America’s wealth gap “our great unfinished business”, describing a crisis of inequality decades in the making. Think of technology, he tells audiences, and how it has thinned the ranks of travel agents, bank clerks and other middle-class gateway jobs. At the same time, global competition has reduced workers’ bargaining power. People have “lost trust in the capacity of government to help them”, he sorrows. But then Mr Obama implies that political villainy is the real culprit.”

So actually Obama is missing the whole point.

130 bob October 1, 2013 at 1:45 pm

It’s a fair answer to the question that was posed, but not a good answer to Tyler’s actual point.

Rising inequality of outcomes doesn’t mean that there should be rising inequality of opportunity. It also doesn’t mean that we should tolerate a terrible standard of living for millions of Americans. I don’t think Tyler favors those at all. It’s just that the way to make sure those things don’t happen has little to do with Obama’s suggestions.

I suspect that Tyler would have less trouble with a Hayekian living wage instead of rising the minimum wage. Rising inequality should also come with something that is, in reality, a more progressive tax system, but there are many ways of implementing that, and Obama’s approach probably has little to do with what Tyler would do.

Besides, it’s not as if the president has that much personal influence on Tyler’s pet issues. I’d much rather see Obama have to answer about Scott Sumner’s pet issues instead. A president has a lot more to do with sitting people at the top of the Fed.

131 paul October 1, 2013 at 4:19 pm

Good point.

132 mike October 1, 2013 at 2:01 pm

It’s a typical Obama answer – a bunch of platitudes (“the skills they need to compete”, “a tax system that is fair”, “ladders of opportunity”, “the middle class”) which can be interpreted charitably to support whatever the listener wants to hear. It’s also typical of Obama in that it shows that he understands basic common sense when he’s put on the spot in a neutral medium, which makes his shrill demagoguery in other venues all the more shameful. Still, kudos to Tyler for getting his book discussed by the world’s most famous reality TV star. And mega LOLs at Obama invoking “Scandinavian countries”!

133 Jan October 1, 2013 at 2:47 pm

Are Scandinavian countries funny on their own, or just when someone utters a fact about them on public radio?

134 mike October 1, 2013 at 3:28 pm

Funny when shitlibs invoke them as a model for the USA. As Milton Friedman said, there is no poverty among Scandinavian people in America, either. And neither will adopting Scandinavian policies lead to Scandinavian outcomes with 21st century American demographics. It’s Mega LOL because it’s Obama, the herald of Third World America, saying it.

135 Jan October 1, 2013 at 4:00 pm

Given its demographics, I expect Russia to become one of the wealthiest and most equal societies, including great social programs, within the year.

136 mike October 1, 2013 at 4:34 pm

Snark isn’t an argument. In fact, it’s usually a sign that you have no argument.

137 Jan October 1, 2013 at 4:57 pm

“Demographics, blah blah blah, Mega LOL” doesn’t make sense. Is that seriously your argument, demographics? Just, like, that’s it?

138 lxm October 1, 2013 at 4:12 pm

Shitlibs!

Nice argumentation, mike!

Shitlibs!!!!

How can we not take you seriously?

Shitlibs!!!! Shitlibs!!! Shitlibs!!!@@@!!!

Does that win the argument?

Or do we need a few more shitlibs!!! Or maybe CrapCons!!!

CrapCons!!!DiareahCons!!!CrapCons!!!DiareahCons!!!CrapCons!!!

Does that win yet? Do we need more? (Where’s my exlax anyway)

How about this ShitLibs!!!CrapCons@@@ShitLibs!!!CrapCons@@@ShitLibs!!!CrapCons@@@ShitLibs!!!CrapCons@@@ShitLibs!!!CrapCons@@@

Do I win? How about this….

139 lxm October 1, 2013 at 4:15 pm

oops! spelled diarhea wrong.

140 Brandon October 1, 2013 at 5:51 pm

The poverty rate for people of Scandinavian ancestry in the US is 0%?

141 Chris S October 1, 2013 at 8:22 pm

I think the vernacular is “megadittoes”, or has it changed to megaLOLs to attract the cool kidz?

142 Syd October 2, 2013 at 8:58 am

@mike
And when exactly did he “invoke them as a model for the USA”? Big LOLs when people can’t read. It’s mega LOLs when it’s a semiliterate shitcon.

143 Matt October 2, 2013 at 10:55 am

Presumably when he listed off a bunch of Scandinavian-esque policies that haven’t worked there and so obviously we should do them too.

144 mike October 2, 2013 at 9:03 pm

i lol’d at “semiliterate shitcon”

145 FC October 1, 2013 at 2:08 pm

Shorter Obama: “Yes we can! Er, what was the question?”

146 Andrew' October 1, 2013 at 3:07 pm

Hundy!

147 Matt October 2, 2013 at 10:53 am

Well why did he invoke Scandinavia? He says that he doesn’t accept that inequality is inevitable, then notes that Scandinavia is even having this problem despite their egalitarian policies, which implies that inequality is inevitable. He then goes on to list a bunch of policies that have been implemented in places like Scandinavia, which evidently haven’t worked, so QED I guess.

See, this is what’s annoying about Obama and the left in general. They can recognize the problems pretty well, but their solutions at best don’t work and usually make everything worse. I would have respected him more if he had just said “Yeah, the trends are there, so pretty much all we can do at this point is give the poor bread and circuses to palliate them until death.”

148 Michael Eades October 2, 2013 at 11:10 am

The essence of the situation can be summed up in the President’s second sentence:

“America is, always [has] been, at its best when everybody who’s willing to work hard has a chance to succeed.”

In the US there is a growing population of those who don’t want to work and a population of those who do. It doesn’t take a genius to realize that the income gap between the two groups will widen over time. And since the President’s own policies have added countless people to the group on the dole, it also makes sense that the income inequality between the two groups would accelerate during his tenure.

149 That Jim October 2, 2013 at 11:55 am

>His answer is good.

Except that he did not answer the question, or even come anywhere near answering the question.

Some people would see that as a flaw in his “answer.”

150 John Jones October 3, 2013 at 10:36 pm

Right, his answer is not an answer. When he said that globalization is a mixed bag, that was true and he understands the issue. But he does not give a real solution to expanding and keeping middle class jobs. But Obama is more about talking than about real engagement. Talking got him elected. (Not that I like the Republican alternative).

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