Thursday, October 7, 2010

OMG, He Has A Good Point, But He's Still Wrong

FLG was listening to Marketplace last night. Robert Reich is one of the regular commentators. Most of the time, FLG listens out of one ear only. Reich doesn't offer much insightful analysis. It's pretty much clichés. But last night was a bit different. The first couple thoughts were boilerplate talking head stuff, but then he said this:
It's no great feat to create jobs by becoming poorer.

And I thought to myself. You know, he's right. That's what I've been saying about so-called Green Jobs for a while now. They are created because wealth is destroyed. However, Reich wasn't talking about that. He was talking about wages.

Since the start of the Great Recession, millions of working Americans have had to settle for lower wages in order to keep their jobs. Or they've lost higher paying jobs and can only find work that pays less. Or they've lost their benefits. Or their co-pays, deductibles and premiums have soared. And their employer no longer matches their 401(k) contributions.

One of the frustrations FLG has when talking about rich or poor is that there are two factors. There's wealth, the money and assets you have, and then there's income, the money you earn. Most of the time, when we discuss rich or poor we are talking about income. This makes some sense because wealth and income are strongly correlated, the government has more data on income than wealth, and you don't want to double tax people.

Anyway, Reich says that we need to get richer, not poorer, and then laments that there is downward pressure on wages. He's a tad daft, but this is dumb. It comes back to the long run versus short. There is a disequilibrium in the labor market right now. Sure, we can complain that people are having their compensation cut. But cuts in the short-term don't mean that wages won't grow over the longer term. Indeed, the faster we reach equilibrium, the faster we ought to start growing again.

That's all well and good, you say. But Reich points out that "For three decades now, America's median wage has barely budged, adjusted for inflation."

That's funny. I went to the Census Bureau's website and looked at the data. Here's a link to the excel spreadsheet. It says that median income in 1967 was $40,108 in 2009 dollars and in 2009 it was $49,777. That's a real, not nominal, increase of 24%. And if you go back to before the recession, the 2006 median income was $51,278, which was a 28% increase. Again, this is all in real terms.

That's barely budged?

In fairness, if you go back to 1989, which is 21 years ago. Then it's almost flat. But again, that was during a boom. The median income fell after that and didn't recover until 1996.  You could say the same, and I'm eyeballing the graph here, for 1969 or so until the mid-1980s.


The Ancient said...

1) "and you don't want to double tax people."

We double tax people all the time, don't we? I'm not sure what you're trying to say.

2) As a matter of principle, I won't defend anything Bob Reich says, even if it's "please" or "thank you." But the argument regarding changes in the distribution of income over the past four decades goes way beyond "median income." Liberals look at the numbers and see one thing, conservatives look at those same numbers and see another. (Big surprise.) On the facts themselves, I tend to side with -- cough -- Paul Krugman. I just don't agree with what he (and others) propose to do about it. (Which isn't all that much anyway.)

FLG said...

1) You don't want to tax wealth and income. Or at least I don't want to.

2) I agree with you on the distribution issue. But he specifically said median income. If he was speaking extemporaneously, then I'd agree that he meant the income distribution. Or give the benefit of the doubt. But these were prepared remarks. Clearly, median income has budged. So, he's wrong. Not on values, but on the facts.

The Ancient said...



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