We are not as wealthy as we thought we were, installment #1637

by  Tyler Cowen in

In dollar terms, median household income is now $49,909, down $3,609 — or 6.7% — in the two years since the recession ended.

That is from Felix Salmon, read the rest of the post and see the graph.  Further comment here.

Comments

JWatts

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That doesn't bode well for saying that the "Stimulus worked".

Chuck

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Indeed, another way of saying that is "the stimulus was much more woefully undersized than previously thought"?

The effects of stimulus are an analog signal, not a digital one, it seems to me. Where might median income be without it?

Matt

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We'll never know, we'll we? And that's how it should be, so those recklessly throwing around these counterfactuals will never have to be responsible for anything they say.

Right Wing-nut

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Like the counterfactual that the recovery would have been worse if not for these interventions?

Chuck

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Well, surely the market will hold me to account for my recklessness, right? If only I'd prepared for this run away inflation...

But, snark aside, it remains true that stimulus doesn't work if there is not enough of it. Furthermore, the recovery from the Great Depression is an existence proof on the side of stimulus. In addition, the absence of any meaningful inflation after this round of stimulus is evidence that the stimulus was too small. Stagflation might be evidence of the failure of adequately large stimulus.

But this really isn't splitting hairs or a technicality. The basic contours of the situation are all consistent with the experience of the 1930's. It's not really reckless to want to do again what worked before.

Matt

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I don't take any particular position on what happened in the 30's, time immemorial for most people, but saying that a generic stimulus working in the 30's means that it will work now is like saying that since the blitzkrieg worked on Western Europe, it will of course work on the USSR. The US of the 1930's was a different place than the US of 2011. For one, building a new road or dam is obviously going to have a greater economic consequence than repairing an existing one.

But the basic point is simple. A forecast is not knowledge. I trust economic forecasting slightly less than I do weather forecasting, so unless you're talking about what might happen in the next 3 days you're just blowing hot air. The real world is not a keynesian--or any other--model. This all really stems from people today having no idea what an economy is for.

TallDave

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Why would we want to repeat the mistakes of the 1930s?

TGD took much longer to get through than other recoveries (as opposed to say, the recession before it, which was much less painful and involved fiscal cuts). If anything it's a proof that stimulus is a really bad idea.

Cliff

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Evidence does not support your beliefs. First of all, inflation has picked up significantly recently (though not to a level of concern). Second, the Great Depression was of course much worse than the present recession and very different in many ways, including contractionary monetary policy in the beginning. There is no compelling evidence that fiscal stimulus had anything to do with recovery from the Great Depression, indeed there was a great deal of fiscal stimulus even under Hoover, during which the depression only deepened.

Veridical Driver

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WWII was the stimulus plan that ended the great depression.

TallDave

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It's really strange that anyone takes the notion of gov't stimulus ending TGD seriously. Unemployment remained high right up until we started breaking windows all over the world at a cost of 50 million lives and trillions in adjusted dollars of damage. Meanwhile we endured severe rationing, most men being drafted and sent off to war, half a million deaths of our own -- and then when we massively destimulated by demobilizing and everyone was afraid that would restart TGD, what happened? One quick recession and then the postwar boom.

Most likely if we'd enacted the Krugulus, we'd be no better off economically (outside of booming D.C.) but we'd have been downgraded several more times and federal borrowing rates might be entering a Greek death spiral.

James A Donald

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> In addition, the absence of any meaningful inflation after this round of stimulus is evidence that the stimulus was too small. Stagflation might be evidence of the failure of adequately large stimulus.

For people on the median income, the major expenses are food and fuel - both of which have shot up massively.

We are calculating inflation on the basis that the fall in ipods outweighs the rise in food. If you are having trouble buying enough food, this is unpersuasive.

Right Wing-nut

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I don't think it bodes well for saying that the recession ended...

Chuck

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Indeed, but this blog is about economics.

Chuck

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Ah I get your point now...

Eric

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Doesn't this mean that a "recovery" is right around the corner? I thought wages had to fall for unemployment to recover, at least according to the neo-classical school. It looks like the opposite is happening. Maybe Keynesians are not the only ones who are being failed by their models.

JWatts

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I'm not sure I follow your logic here.

"I thought wages had to fall for unemployment to recover, at least according to the neo-classical school. It looks like the opposite is happening."

It does look like wages are falling. One would assume at some point the wages would fall low enough that unemployment would start trending down and the 'near' recession would end.

You say the opposite is happening. Well if wages were falling and unemployment were getting worse over several quarters this would be true. Here is a link to unemployment over the last two years. It is falling not rising. Granted it's not falling fast, but it's clearly dropping.

http://www.tradingeconomics.com/united-states/unemployment-rate

Eric

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Good point. But how much can the drop in unemployment be attributed to the shrinking labor force participation rate? It has been at least two quarters since we have had job growth that can even keep up with population growth, and "discouraged" workers have left the labor force at a lower level than at any point since the mid-1980s. With those factors taken into account, lower wages have resulted in few (and, more realistically, no) significant job growth.

byomtov

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I thought wages had to fall for unemployment to recover,

You were mistaken.

If everyone's wages fall, who's going to buy stuff?

Frank

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Heard of investment?

Speaking with Keynes, expansionary money, a outrance, would do the same trick as falling wages.

NAME REDACTED

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"I thought wages had to fall for unemployment to recover, at least according to the neo-classical school."

The original Keynesians made this point as well.

Scott Sumner

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Nominal income is also down. Something to do with tight money?

Silas Barta

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When all you have is hammah, everyting rook rike a nair.

Geoff Olynyk

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For some time now I've been thinking of this "recession" less as a traditional recession and more as a huge structural shift. Basically 20 years of downward pressure on developed world wages for everyone except the elite (due to the rise of China and India, plus increasingly cost-effective automation and robotics) have suddenly manifested itself.

Tyler calls the bulk of the unemployed today "zero-marginal-product workers", which I guess might be true, but doesn't help us figure out what people in the first world can do for meaningful work. Or are we all just to sell each other Starbucks and insurance products until wages have equalized between North America and Asia?

Geoff Olynyk

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I mean seriously, I'm not a professional economist, and don't really care to be an armchair one... but is anybody pursuing this theory? It could explain a lot, I think:

1. There has been economic "pressure" building for thirty years as what was the undeveloped third world (mainly China, but others too) is now able to compete in the global high-tech marketplace

2. Thus there are > 1 billion new workers. Supply of labour has just DRASTICALLY increased.

3. U.S. was dominant post-WWII because the rest of the world was either bombed to devastation, or stuck in undeveloped state. This is no longer the case.

4. This should have led to a steady loss of American (+ Canadian, + European) jobs over decades, and a relative decline in those economies...

5. But people of course resist this, and so we saw one "bubble" after another to keep U.S. economy afloat. Dot-com bubble, massive increase in military spending (on both troops and weapons development), finally the housing bubble of the 2000s decade

6. The "pop" that hit in 2008 wasn't really just a housing bubble popping, but all the accumulated pressures of thirty years of all the "real" blue-collar jobs (i.e. jobs that actually lead to real stuff being made) being moved overseas to areas with cheaper labour

7. Thus this is not just a recession, but is a huge structural shift that basically hit all at once

8. Things aren't going to get better for the American blue-collar worker. (Or really, anybody except the global/nationless elite)

9. Things will stop getting worse when American standards of living fall (and Chinese/Indian/etc. standards rise) enough that the jobs stop leaving. This could be a while. This really is different than previous recessions, at least for "low-skill" workers, because of the existence of two billion new workers in the newly opened market economies.

10. In general, cheap overseas labour has a similar effect as high technology: it eliminates jobs for low-skill / low-intelligence workers.

11. There are good jobs available in Canada/USA/Europe... if you are able to program a computer or design a robot for a car assembly line. Or do steel metallurgy. Or design bridges.

12. What the hell is there to do for people who can't do this stuff?

13. Our theories of economics say that it's okay if people are paid less, as long as goods (TVs, phones, cars) get cheaper. They say "real wages have gone up", where real wages are nominal wages normalized to the cost of a basket of goods.

13a. What this means in practice is that people that used to work on assembly lines are now serving coffee at Starbucks, but economists say that that's okay, because they can still afford a plasma TV and a smart phone.

14. But what these theories miss is this very important idea: [b]people need meaningful work[/b].

15. Look at the Arab Spring. In some of those countries (e.g. Egypt) the government used oil money to keep a huge, inefficient civil service/bureaucracy around. People weren't starving. And yet they rioted and overthrew the government.

16. Why? Because they want to feel like their lives mean something, like they are working toward something. It's not enough to go into a do-nothing job, sit and read a book for six hours, then go home. Even if you aren't starving. Look at the reasons they gave for the protests: "Hopelessness." "Feeling that the country isn't going anywhere." "Wanting a say in our future."

17. So I ask again: if people in China or India will do the manufacturing work for less than what would be a living wage in North America, or a robot can do it forever for just capital costs + maintenance, what meaningful work exists in the 'first world' for people who aren't intelligent, motivated, or skilled enough to be the ones programming the robots?

18. Nobody disputes that there will be good, meaningful, well-paying work for the emerging global elite (nation-less, really: "the rich have no nation") consisting of people who are skilled, intelligent, and creative enough to go out and solve problems in whatever field they have to.

19. I feel like this is a question that really, really should be thought about a lot more by governments around the world.

Bob Dobalina

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but is anybody pursuing this theory

No one, especially in these parts, is pursuing a theory that has anything to do with stagnation or structural change.

unionman

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Great post. In response to #17:

"what meaningful work exists in the ‘first world’ for people who aren’t intelligent, motivated, or skilled enough to be the ones programming the robots?"

My honest belief is that there aren't jobs for these people, and this is a phenomenon that will continue to creep up the skill chain. We've reached a point where higher skilled workers are increasingly being put to work automating the less skilled workers out of their jobs. It's also not just going to stop at mindless assembly type jobs either. I've been watching improving technologies put my analyst colleagues out of work increasingly in the past decade. It used to require an army of statisticians to build models, analyze data, etc., but now we just need a few that can utilize the myriad of programs out there. It used to take multiple teams of business analysts hacking away in spreadsheets to find pockets of opportunity, but this can be done now by a dozen runs of a clustering algorithm. There used to be departments devoted to uncovering fraud, figuring out pricing terms, or routing customers, but these are now scored instantly by dozens of models and handled by a handful of experts. If anything, I see this trend accelerating in the coming years.

Where I disagree with you is that this isn't something just governments should be thinking about: this is something our societies need to come to terms with as well. I think there were similar fears during the industrial revolution that all income would be earned by a handful of capital owners, but it turned out there were still significant amounts of white collar jobs that needed to be done. Unfortunately, I don't see a similar solution for this new revolution because technology isn't just encroaching on our physicals abilities but our mental ones as well.

Geoff Olynyk

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Unionman: My honest belief is that there aren’t jobs for these people, and this is a phenomenon that will continue to creep up the skill chain.

That's kind of scary. It seems like the effect of increasing global free trade plus increasing automation, is to foster polarization: (1) A globalized, nationless elite that consists of those intelligent, motivated, skilled, lucky, and well-connected enough to be in charge of the capital and "programming the machines", so to speak. (How much you think each of these factors influences ones membership in the club of 21st-century globally successful people depends on your political views.) And then (2) A lot of other people across the world competing for not enough jobs that they are capable of doing.

I feel like the entire crisis can be summed up as: "In the 21st century globalized world, what meaningful, well-paying work exists for those with IQ <100?"

Now, that's a horrible, arrogant, reductionist thing to say. But if you substitute motivation, skills, intelligence, well-connectedness, personability, confidence, leadership, etc. for "IQ", then the point stays the same: not everybody has it. And it used to be that those that don't have it, still could make a living wage. Seems that that is becoming less true, due to (a) automation, and (b) two billion new workers.

JWatts

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"That’s kind of scary. It seems like the effect of increasing global free trade plus increasing automation, is to foster polarization: (1) A globalized, nationless elite that consists of those intelligent, motivated, skilled, lucky, and well-connected enough to be in charge of the capital and “programming the machines”, so to speak. (How much you think each of these factors influences ones membership in the club of 21st-century globally successful people depends on your political views.) And then (2) A lot of other people across the world competing for not enough jobs that they are capable of doing."

I think I read that book and saw the movie: http://en.wikipedia.org/wiki/The_Time_Machine

Benny Lava

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Too add anecdote to this: over the last 5 years computer algorithms have been able to search through case law effectively reducing a team of lawyers to one lawyer and a paralegal. It is a contributing factor to the huge unemployment facing new law school grads.

mulp

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But all lawyers need to do is work for minimum wage and they'll easily find lots of clients who have been defrauded by the banks to sue the banks individually - the surplus of lawyers and lower wages will increase demand for suing the big banks.

Of course, conservatives will call for job killing tort reform to protect the Wall Street profits.

8

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20. Marginal returns to education and health spending peaked in the 1980s (R&D also peaked long ago, see Tainter) and are now negative. A shrinking domestic economy has to support a massive education and healthcare establishment, entrenched by government control; these two sectors of the economy are destroying the shrinking capital base on a mass scale.

Todel

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"There are good jobs available in Canada/USA/Europe… if you are able to program a computer or design a robot for a car assembly line. Or do steel metallurgy. Or design bridges.
12. What the hell is there to do for people who can’t do this stuff?"

Should have paid attention in math class MUTHERF*CKERS !

Henry

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I agree. You can say all you want about "Benedict Arnold" CEOs and “zero-marginal-product workers”. The reality is that the wage differential is simply to much. Something has to be done about the ZMPW, and I suspect that letting their standards of living slip until they match the chinese is not going to down very well.

Veridical Driver

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Letting their wages "slip" is not that bad when it happens over 30 years... It is when we have been keeping them artificially inflated for 30 years, and then they all drop at once, that is gonna be the end of the world.

Geoff Olynyk

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http://www.thefirstpost.co.uk/85576,news-comment,news-politics,alexander-cockburn-uprising-in-saudi-arabia-america-wont-allow-it

"In February of this year, perturbed by the trend of events in Egypt and elsewhere, the 87-year-old King Abdullah announced his plan to dispense $36 billion in welfare handouts – about $2,000 for every Saudi. He correctly identified one of the Kingdom's big problems, which is that over 40 per cent of people between 18 and 40 don't have a job."

TallDave

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I can't wait to see how that works out.

Proponents of AD-centric arguments should get on the record now so that they get proper credit for predicting the Great Saudi Non-Oil Economic Boom of 2011.

Peter Schaeffer

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I have three brilliant ideas about how to resolve this problem. My ideas are so good, they are actually the policies of the United States.

1. Let's run a $600 billion a year trade deficit and throw away 5 million jobs. We don't need them anyway. What's 5 million jobs among friends? Of course, trade deficits also strongly predict subsequent economic crises. I guess admitting the "free" trade is a poisoned chalice is unthinkable among sensible people.

2. Let's open our markets to China while China systematically hollows out the U.S. economy. China's policies have brought vast miserly to the U.S. in recent years. A careful study "The China Syndrome: Local Labor Market Effects of Import Competition in the United States.⇤" found that China accounts for at least 1/4th of U.S. manufacturing job losses. Not a big problem living in D.C. presumably. Let Ohio rot.

3. Let's import millions and millions of unskilled workers (and welfare recipients) even though we are creating zero new jobs over a ten year period and public finances are in disarray. Immigrants (legal and illegal) are literally replacing Americans on a staggering scale. I guess unemployed Americans should get a Ph.D. in molecular biology and stop complaining.

You see, solving America's economic problems is so easy we are already doing it.

Bill

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And, while we're at it, let's tilt our corporate tax policy to favor multinationals, so that local businesses pay a higher effective rate than multinationals, and then let's give the MNC's a tax holiday

Peter Schaeffer

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@Bill,

Soooo true. You would think the Republicans, who pride themselves on their patriotism, would be the first to denounce this. You would be wrong.

The astonishing thing is how much of the "establishment" buy into this. The MNCs are pushing hard for a corporate tax holiday that would let them repatriate overseas earnings without any taxes.

They haven't succeeded yet. However, pushback is modest at best. I have seen exactly one article to date objectively discounting the theory that this would promote investment in the U.S..

When Obama was running for president he briefly suggested taxing offshore earnings at a higher rate than domestic profits. This triggered hysterical claims of "protectionism". He dropped this hot potato in short order.

Of course, Obama overtly lied about his opposition to NAFTA... But that's a different story. Overall, the Democrats are better than the Republicans on trade issues. But not by much. Both parties are appallingly bad.

Chris

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I saw your comment on Felix Salmon's site and resisted the urge to respond. I told myself, I'll just go to Marginal Revolution where the comment quality is higher. Oh well...

Points 1, 2, and 3 are all the same thing: foreigners are stealing our jobs and making us poor. What would you do? Stop trading with China, halt immigration, and tax imports heavily? Tariffs worked in the 30's with Smoot-Hawley right?

The Chinese are more efficient at manufacturing goods. What should we do? Ignore reality and postpone the inevitable? No. We should let them do the manufacturing and focus on our comparative advantage. We should make skilled immigration easier so that our tech companies can hire the best workers to collaborate with American innovators. We should work on making our K-12 schools internationally competitive.

I get that trade hurts people in the short run. And trade can hurt people with low skills. But, you should at least acknowledge that trade is vastly improving the lives of people in China and India. Why should I prefer supporting one American over 3 Chinese? They're all human beings. One just happened to win the lottery and be born in the U.S. There is no such thing as American jobs. Jobs aren't a right and no one is entitled to a standard of living.

Peter Schaeffer

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@Chris,

What would I practically suggest?

1. Declare China to be a currency manipulator (which everyone agrees is true). Try to negotiate a "fair and balanced" RMB / Dollar exchange rate. If that doesn't work, require all trade payments with China to go through the Treasury. This is the approach the Chinese use. It works for them. Why not us? The Treasury would set the RMB / Dollar exchange rate for all imports from China at whatever level suited U.S. interests. The Chinese wouldn't like this. However, it is the system they use. We should also bar technology transfers from U.S. firms to China without a license. Each license application should be carefully reviewed to see how it advances U.S. interests. Once again, this is what China does. Why not the USA?

2. With respect to trade overall, I recommend the Buffett plan (Squanderville). Have importers of all good and services obtain foreign exchange only from exporters. This will force the U.S. trade deficit to zero in short order. It will also trigger a boom in capital investment in U.S. product. Did I mention that it will create 5 million jobs?

3. The U.S. should end mass immigration now. Limited, highly skilled immigration should be allowed subject to reasonable limits. The indentured servitude system (H-1b) should be replaced with a Canadian style points mechanism. Once admitted a legal immigrant should be free to work freely. The existing illegal population should be repatriated via E-Verify and internal enforcement (SB1070). Did I mention that this will create 7 million jobs and trigger a boom in capital investment?

"Why should I prefer supporting one American over 3 Chinese?"
Maybe because you are an American? Pretty radical thought. The bigger point is that China and India are not America's problem. American policies should reflect American interests and nothing else.

Chris

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1. If China wants to increase the value of the dollar so we have to give them fewer dollars to get more stuff, I'm ok with that. What is a "fair and balanced" exchange rate anyway? Who decides that. I can't believe that you suggest the U.S. should adopt capital controls like those that exist in China. That would be a massive violation of economic freedom. If I think the U.S. government will make poor financial choices, I should have the right to protect myself by buying other currencies.
2. If U.S. citizens want to be "Squanderville" and spend more than they save (much of the spending being on exports) that is their prerogative. I have no idea where you get your 5 million jobs from. Those forecasts are always just guesses. But, regardless, the goal shouldn't be to create jobs it should be to create workers who can add value.
3. Finally, a point of agreement. H1bs are broken. Agreement ends there. There are serious ethical problems with kicking millions of illegal immigrants out who have been tacitly encouraged to work in the U.S. for years. There are serious civil liberties issues with requiring electronic verification before anyone can work.

Being an American doesn't mean that I have to value fellow Americans over other humans. That position isn't morally defensible. Is 1 U.S life more valuable then 2 Chinese lives...how about 10, 1000? As a small business owner (software) I'm happy to hire Indians when they work harder and do better quality work that American competitors. I'll choose the best worker for the job. And I'm happy to know that the wages I pay will go further to improve the lives of a family in India than they would in the U.S. I don't need my government interfering with that relationship and I won't support policies for that to be done to other business owners.

The Anti-Gnostic

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Being an American doesn’t mean that I have to value fellow Americans over other humans.

Then what really is the point of being an "American"? If a Han Chinese, Punjabi, Guatemalan, etc. has as much claim on your loyalties as anybody else on the planet, then an American nation-state is just an expensive anachronism. Incidentally, I think you'll find that the Han, the Hindu and others don't share your atomized worldview.

Dan Dostal

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Indian coders are giving you better value than American coders? Is that Salary/coder? Or is that actually quality out the door? As an American who does coding (not a code monkey, but in the same industry), I've been shocked by how poor Indian code has been. Perhaps we work with different Indians though.

Philip

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Being an American doesn’t mean that I have to value fellow Americans over other humans. That position isn’t morally defensible.

Isn't morally defensible? Why is that? Is it because you decline to observe the layered, overlapping quality of human loyalty? Or do you decline to observe issues of national/ethnic loyalty and attachment because your quantitative utilitarian outlook prevents you from doing so?

Or is it that such economic stylings were from the beginning rooted in the peculiarly white Western elite's pathological altruism and phoney gestures of outreach? Where do the historical forces end and your own peculiar conceit--that you are enlightened and open to the world while others are locked in tribal stupidity--begin?

Liberalism is organized unreflection. In this case you can't process the observation that some people persist in valuing their ethnic national loyalties over free trade and invidiualistic economic anonymity. Instead of honestly inquiring, "How could this be," you translate your analytical failure into an ongoing high-IQ tantrum: "How COULD they? HOW DARE THEY?" Eff you.

D

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What is a “fair and balanced” exchange rate anyway? Who decides that

In a real market it would be currency traders. Except the Chinese government doesn't allow their currency to float. So the answer to your question is the Chinese government. Do you think that's "fair an balanced?"

Being an American doesn’t mean that I have to value fellow Americans over other humans

Of course not. But be aware that the Chinese government most certainly values Chinese people over other humans.

Alan Andrews

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"There are serious ethical problems with kicking millions of illegal immigrants out who have been tacitly encouraged to work in the U.S. for years. "

I don't have a problem with it. Kick their asses out.

Peter Schaeffer

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@Chris,

"If China wants to increase the value of the dollar so we have to give them fewer dollars to get more stuff, I’m ok with that"

Great, America is not. You like cheap towels. America needs 5 million jobs and $600 billion in incremental income.

"I can’t believe that you suggest the U.S. should adopt capital controls like those that exist in China."

Capital controls? Where did I suggest any such thing? Requiring trade with China to go through the Treasury is a rather different matter. Of course, we could use "cap and trade". Establish a ceiling on imports from China and auction the permits. That a nice free market approach, don't you think?

"That would be a massive violation of economic freedom. If I think the U.S. government will make poor financial choices, I should have the right to protect myself by buying other currencies."

Buy whatever currencies you want. Trade in goods and services is a different matter.

"If U.S. citizens want to be “Squanderville” and spend more than they save (much of the spending being on exports) that is their prerogative"

I guess you missed the memo about how the housing bubble was engineered to offset the trade deficit. We don't live in a pure free market world. Get over it.

"I have no idea where you get your 5 million jobs from."

From Peter Morici as it turns out. However, the math is trivial. $600 billion trade deficit. $120,000 per job.

"There are serious ethical problems with kicking millions of illegal immigrants out who have been tacitly encouraged to work in the U.S. for years."

Encourage by who? The American people have opposed illegal immigration for decades. The elites have sabotaged all attempts at enforcement. The illegals have already burdened America enough. They can take all that they earned in America home with them and thank us for our hospitality.

"There are serious civil liberties issues with requiring electronic verification before anyone can work."

You fail the reality test. E-Verify is in use in several states and the Federal government. Problems to date have been nil.

"Is 1 U.S life more valuable then 2 Chinese lives…how about 10, 1000?"

China is responsible for the prosperity of the Chinese people. India is responsible for India's people. Guess what? America's government is responsible for our people, not foreigners.

Peter Schaeffer

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@Chris,

I have already stated "what I would do".

"Tariffs worked in the 30′s with Smoot-Hawley right?"

The U.S. maintained high tariffs throughout the 1920s (and long before). Smoot-Hawley was actually a revision of the very high Fordney–McCumber Tariff of 1922. If high tariffs were really so bad, the economy should have crashed 7 years before 1929. Actually, we had the roaring 20s with high tariffs. Indeed, the economy was so strong that a speculative bubble arose in stocks.

"The Chinese are more efficient at manufacturing goods"

Wow.I didn't know that.Check out http://bit.ly/rljN7y. U.S.value added per manufacturing worker is $81,353. China is $2885. Do facts matter? Probably not.

"We should let them do the manufacturing and focus on our comparative advantage"

China's "comparative advantage" is in currency manipulation. What's ours? Producing credit card debt that we can sell in Beijing? Taking in each other's wash?

"We should make skilled immigration easier so that our tech companies can hire the best workers to collaborate with American innovators."

Contrary to popular mythology, skilled immigration to the U.S. is already quite large. See "Is There a Shortage of Skilled Foreign Workers?" (http://bit.ly/p6tmDZ). Quote

"The forces of big industry and big immigration beseech us to change our immigration laws to permit the admission of more skilled immigrants; we must seek the help of the world’s “best and brightest,” they say. What is never mentioned is that “the best and the brightest” are already here. Further, close to 200,000 additional skilled migrants routinely enter the nation each and every year without any new laws. Year after year."

Two more notes. Most H1-Bs are just cheap labor. Their only advantage over Americans is lower wages. We don't need the Senator from Punjab shilling for sweatshops. Second, a large majority of foreign Ph.D. recipients remain in the United States under current law.

"We should work on making our K-12 schools internationally competitive."

America's schools are already (almost) the best in the world. See "The amazing truth about PISA scores: USA beats Western Europe, ties with Asia." (http://bit.ly/e1BN6o). Average U.S. scores are lowered by the legacy of slavery and the dismal performance of immigrant children. Mass immigration is America's most important education (anti-education) policy. Time to stop it. Note that massive immigrant under performance is global.

"I get that trade hurts people in the short run. And trade can hurt people with low skills."

Both statements are correct. However, the real truth is much worse. American is losing at least $600 billion per year in potential income because of the trade deficit. That's a national wound, not a problem for the specific victims of "free" trade.

"Why should I prefer supporting one American over 3 Chinese?"

I don't really know. Perhaps you are citizen of the (wait for it...) United States.

Dave

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Actually, egyptians revolted because oil subsidies got cut. People are ok with dictators if GDP goes up (see china)

JWatts

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And that is an excellent point.

NAME REDACTED

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And this is why economic freedom (without political freedom) is usually more utility maximizing than political freedom (without economic freedom).

JSK

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People rioted, and are still rioting, in Bahrein: where average income is close to $50000 PPP and welfare is $1000 a month.

Marian Kechlibar

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"Averages" are meaningless in a country like Bahrain, where one ethnic group gets most of the cream and the other (by coincidence, a majority) just a slim fraction.

The Sunni elite treats the Shi'a majority like servants, while also (rationally) distrusting them to such a degree that they employ overseas, foreign-language Sunnis as policemen and soldiers.

David R

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That figure cannot be correct, because a CPA in the Wall Street Journal op/ed pages says you can barely get by on $75,000 a year.

See the analysis and link here.

http://dismalpoliticaleconomist.blogspot.com/2011/10/wall-street-journal-opinion-page.html

How does an economy have sustained economic growth with declining median incomes? Answer: It doesn't.

Dan Dostal

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Answer: it stops supporting the bottom of the barrel splitting the economy along some sort of line recreating the Ancien Regime. Hence why welfare will continue. If politicians dropped welfare for several years and let the banks fail, I bet we'd start seeing signs of revolution.

Bill

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Who cares about the median.

The top 1% are doin' just fine. In fact, the effective tax rate of the top .1% of one percent declined from 28% of adjusted gross income in 2001 to around 21% in 2008. Surely we can do better to help them, as it does all trickle down if you sell luxury goods.

Bill

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You are not permitted to talk about the decline in the median income.

It incites class warfare.

Be warned.

Cliff

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Bill, where would we be without your delightfully sarcastic Democrat polemic?

Jay

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I much prefer the charts with AVERAGE productivity and MEDIAN income. You can get a quick read on who can pass high school statistics and who cannot.

Veridical Driver

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We just don't like to be lectured about class warfare from folks who rail about the "evil corporation", while rabidly defending a political regime that has broken all records in corporate donations and corporate welfare. When your precious Obama stops appointing Monsanto executives in charge of the FDA, stops accepting more corporate donations than any politician in history, and stops his whole "grass roots" campaigning being funded by Wall Street moguls like George Soros, then maybe you will have some class warfare street cred.

The only "class warfare" happening in America is between the capitalist class that owns the Democrats and the capitalist class that owns the Republicans.

Peter Schaeffer

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VD,

Perhaps you think the opponents of Open Borders and corporatist globalization support the "precious Obama".

If so, you are 100% wrong.

Dave

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Or everyone can open up their border, and let workers do what capital has been doing for years, i.e. move freely. The restrictions on labour mobility is one of the greatest inefficiencies present in the global economic framework.

Bong Hits for Hitler

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Lets hope every single one of them moves to your neighborhood, and sends their kids to your kids' school.

Veridical Driver

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Don't worry, there will always be intolerant lilly-white communities for racists like you to hang out in, even with immigration.

Marian Kechlibar

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Tell this to the only three German kids in a Berlin school full of Arabs, who treat them like free targets for fist and kick practice. Or to their teachers, who are routinely threatened with rape and grievous bodily harm.

You know, some cultures do not really share all the "live and let live", "love thy neighbor" kumbaya. These are not universal human values.

Afaik, the Arab proverb is "Me and my brother against my cousin; me and my cousin against the rest of the world."

Dan Dostal

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Your anecdote is meaningless. Bad shit happens the world over, Berlin is not exempt. Ignore the improvements that foreign workers have brought Germany, but understand that you are a racist for doing so.

The Anti-Gnostic

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Dan Dostal,

What specific improvements have foreign workers brought to Germany? I know the idea that more and more people (any people) in a given place is a popular one but I've never really heard the specifics. What problem did Germany face for which immigration of people from poorer countries was the necessary solution?

Peter Schaeffer

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VD,

In real life liberals proclaim (loudly) their belief in "tolerance" and "diversity". In practice, they send their kids to private schools. In Nancy Pelosi's San Francisco, 30% of all school kids attend private schools. That appears to be the highest percentage in the United States.

Open Border = Liberalism = Private Schools + Gated Communities

Peter Schaeffer

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@Dave,

That's such a brilliant idea, I am embarrassed that I didn't think of it. The American people are having the lives ravaged by outsourcing, gigantic trade deficits, corporate tax avoidance, deindustrialization, manufacturing decline, etc. What to do? Import an unlimited number of foreigners to replace them at whatever jobs are left behind.

Sounds just like the Bush "Ownership Society". How did that work out?

IVV

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As long as the Americans are free to move to China and India, everything should be fine.

On the other hand, if there isn't some massive American emigration to greener pastures... those pastures might not be greener.

The Anti-Gnostic

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If you are going to do that, then you need to abolish all those enormous government armies that purport to guard those borders as well. Then you need to abolish all the civil rights laws and related workplace and property regulations that those same governments impose to maintain the multicultural society that is supposed to exist "nautrally" on the timeline of human progress. The modern innovations of public education and social services impose externalities as well.

Only after removing all these will we be able to calculate the true cost of businesses' hiring decisions. I'm guessing at that point you'll come up with a long list of grievances inflicted by the market, and which "social justice" demands that the government redress.

Crenellations

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Is that significant? Does it require that somebody do something quick?

TheophileEscargot

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Almost hoping for a thief to break into Tyler's house so we can solemnly declare "He doesn't have as much stuff as he thought he did."

There is a difference between "not having as much as you thought" and "not having as much as you used to". Not convinced that it's the first rather than the second.

unblinkered

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Priori beliefs meet amateur economics to frothy toxic climaxes confirming same said priori beliefs, in another comments section... Tyler you cant but help notice the strong drift of the crowd slithering in here since the economy went south...

Norman Pfyster

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You could have dropped the "we thought" in the title, since the actual numbers have declined. I'm also trying to figure out the "in dollar terms" in the quoted line; are we normally measuring US income in another currency?

AlanW

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All this talk about China and protectionism and nobody brings up the simplest thing we could do? Inflation. If China wants to subsidize its export economy on the back of American manufacturing, there's no reason for us to make it painless for them. Likewise, inflation eases the debt crisis here at home and, hopefully, forces those median salaries up. Heck, even if it doesn't work with regards to China or domestic incomes, at least we'd effectively write down the U.S. debt and give more maneuvering room to policy makers. And, I'd argue, inflation is a less painful way of reducing incomes than persistent unemployment.

Kyo

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Alan, inflation would ruin savers -- the diligent hardworking folks that our society needs more of -- and reward the heedless imbeciles who went over their heads in debt.

If anything, the US should be pursuing a policy of stable prices so that old-fashioned thrift won't be so old-fashioned anymore. Let people save nest eggs to carry themselves through periods of unemployment. Bring back the once-common 50% down payment for home mortgages.

Inflation just makes people spend money faster than they migth want to and faster than is prudent, because they know that the value of their money is going to be gutted if they don't hurry up and hand it off to someone like a hot potato. It's brought about two whole generations of terrible saving habits. A stable currency that stores value over time should be one of the very most basic things that a government provides.

AlanW

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A stable currency at the price of unending double-digit unemployment and the erosion of America's dominance in the world economy? Yippee. To get out of this mess we need to make our industries competitive internationally (that doesn't mean low-wage, necessarily), clear the books of the banks and get home owners above water, and get money off the sidelines and into building a productive economy. A stable currency does none of that. Two percent inflation combined with sinking incomes is simply hidden deflation. I'm not arguing inflation doesn't come with a lot of pain, I'm just arguing it's a better bet than standing pat.

The Anti-Gnostic

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Stable currency means the prior malinvestments get liquidated so the actual recovery can begin. Prices, including interest rates, must go back to reflecting supply and demand rather than what Bank of America or Barack Obama or the sucker who overpaid for a house thinks they should be. Only then will capital flow back to sustainable activities. The government has been hampering the recovery for the past three years.

There is really no easy way out. The "wealth" was all just paper gains based on pulling future demand forward. Now it's gone, captured by the upstream recipients of those funds. Inflation is just hair of the dog.

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