The Upshot Is…

April 22nd, 2014 at 9:32 am

…a new feature over at the NYT—the brainchild of long-time economics writer David Leonhardt—covering all kinds of interesting stuff in the intersection of econ, politics, and life.  I’ll be writing for it, as it absorbs the Economix blog.

In the first issue (not the right word in digital world, I guess), Leonhardt and Kevin Quealy team up for a fascinating look at the progress of real income growth across countries and across the income scale, adjusted to be in comparable dollars.

The US problem relative to others is clearly seen in the table below: our real median income has been flat where other middle-incomes in other advanced economies rose from slightly in Germany to fairly strongly in Canada and the UK (the latter result is partly driven by stopping at 2010—since then the real UK median is down significantly—see this from the Resolution Foundation).


Source: NYT, Upshot

The other figures, including one that looks exactly like a bunch of games of pickup sticks, show that thanks to this post-2000 stagnation, the US is losing its lead, except of course, at the very top of the income scale, where we’re pulling away from the rest.

By way of explanation, the authors note our loss of relative ground in educational attainment—a key theme of Leonhardt’s—along with higher inequality, less collective bargaining and lower minimum wages compared to the other countries in the study.  My readers are hopefully wondering about slacker labor markets in the 2000s, and that’s part of the problem too, though not uniformly across all of these countries (Ireland, UK, pretty strong; Germany, Canada, less so).

On the inequality point, I’ve lately seen some writing, partly in response to Piketty, that higher inequality is benign in terms of the income growth of lower-income households.  Such a claim is far from obvious and justly counterintuitive.  Clearly, the same amount of growth will reach fewer households amidst rising inequality.  One could argue that progressive taxes and transfers and greater redistribution offset the tilted growth dynamic, but that is to be seen—these data apparently capture direct government benefits.  And of course, amidst persistently rising inequality, that after-tax offset implies a constant increase of the redistribution function, something US politics at least will not abide.

At any rate, that’s the Upshot, and I’ll see you up there myself later this week with a scintillating look at the “rents” versus merit debate.

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8 comments in reply to "The Upshot Is…"

  1. Robert Buttons says:

    There are many problems with the article. Most obviously is the hackneyed bogeyman of minimum wage.
    From their article:
    “A second factor is [in the US] the minimum wage is lower. Labor unions are weaker”

    But what countries are purportedly doing better than the US?

    They say: “even in Germany, though, the poor have fared better than the US” and “Per capita GDP has grown more quickly [in Sweden] than the US”

    The authors disingenuously fail to point out there is no minimum wage in Germany and Sweden!!

    • readerOfTeaLeaves says:

      I found the article interesting, the individuals highlighted nicely illustrated broader social outcomes across nations, and the graphs are terrific.

      As for your phrase: “…the hackneyed bogeyman of minimum wage…” I don’t see anything ‘hackneyed’ about the term. I might, however, rephrase it to something more wordy like, “a pay rate that ensures that people (i.e., my neighbors, friends, kids, and cousins) don’t have to underwrite the medical and educational expenses of entities like WalMart, which offer so much part-time and low-wage pay that the rest of us have to pick up the tab for their business models.” Or shorter: “enough pay so that the rest of us don’t get stuck covering the negative externalities for their failure to pay their own employees decently.” This is particularly true for a company like WalMart, which IIRC is the largest employer in about half the 50 United States. That’s a **lot** of negative externality, and the salt-in-the-wound is the fact that the Walton heirs are among the 10 wealthiest people on the planet.

      However, I’d certainly welcome a US conversation about a *maximum* wage – say 250% of the lowest paid employee in an organization. The effects of a shift like that on corporate productivity would be worth examining.

      • Robert Buttons says:

        If you would like substantive discussion about inequality start with this fact:
        In Piketty’s new book “Capital in the Twenty-First Century” figure 9.8 charts income inequality. The chart shows a massive upswing in US inequality that begins in 1971 and continuously accelerates until today. It seems like too much of a coincidence that Bretton Woods ended in 1971. Your thoughts?

        • DonB says:

          1971 was the point at which the U.S. inequality curve flattened out, at the time of the beginning of the OPEC oil embargo and subsequent economic distress across Europe and the U.S.

          It is 1986 when the inequality curve begins a huge jump and that was just after the Reagan Tax Reform Act of 1986, when the taxes on the income of the most wealthy dropped significantly.

          Didn’t you realize that making your claim would only point out when the inequality really took off?

  2. Larry Signor says:

    Even considering after tax transfers. the poverty rate is not justifiable in the richest country on the planet. There is no cogent argument against eliminating poverty in America. See here:

    • Robert buttons says:

      We need to be more realistic. We have been failing at eliminating poverty for 40 years.

      • DonB says:

        The failure to make more progress (poverty would be much worse without the efforts taken over the last 40 years) has been caused by efforts from people like you who demean such efforts without much real evidence.

  3. urban legend says:

    In all the speculation about causes of rampant inequality growth in the U.S., and with reference to Jared’s constant (and valuable) harping on full employment and its absence depressing wages, I wonder how many have considered the following:

    Monthly unemployment rates from the beginning of 1948 through November 1974, a period of 27 years and 323 months, showed the following: (1) the unemployment rate in that 27 year period was 7% or higher in only 10 of those 323 months, or only 3% of the time; in fact, it was under 3% — yes, between 2.5% and 2.9% more often than it was 7% or more. It was below 4.0% — 2.5% – 3.9% almost one-third of the months, or the equivalent of over 8 years; under 5% more than half of that entire period; and under 6% for 84% (272 months) of the entire generation-plus. Those were the glory years of relative equal participation by wage-earners in the fruits of growing productivity. Coincidence? Unlikely.

    Is it a coincidence that this pattern — this social contract, if you will — was broken just a few years after the infamous Lewis Powell memo with its game plan for reasserting corporate control of the country, or almost immediately after the Powell memo was given urgency when the Republican Party hit its nadir with the resignation of Nixon and, in the elections of 1974, filibuster-free Democratic Party control of the Senate and over two-thirds of the House membership? What better way to discipline unruly and restless workers — and keep wages low — than a lot of fear?