Media clips
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As Danny Vinik points out, compensation hasn’t risen with productivity for over 40 years. You can see that in the chart below from the Economic Policy Institute. Since 1973, inflation-adjusted wages and benefits have barely increased for most workers, despite increasing productivity.
This is two-card monte, because we’re still waiting for the last one to trickle down. Now, you start by saying that we shouldn’t tax the rich too much, because they’re smarter than everybody else and deserve their wealth. Never mind, as Noah Smith points out, that nobody “deserves” the brains they inherit. Or that, when it comes to IQ, we shouldn’t put too much weight on nature over nurture, since we know, for example, that growing up in poverty can hurt children’s neural development. No, then you admit that it doesn’t matter whether they deserve their money or not. That we still shouldn’t tax the rich too much even if they are layabout heirs. That’s because we need their savings to fund the investments today that will make us all more productive — and hence, better paid — tomorrow.The Washington Post June 27, 2014 -
Indeed, Detroit is the fifth most affordable city in the U.S. for real estate, according to HSH.com, a mortgage-information firm. Residents only need to earn $32,250 a year for a median-priced home — making Detroit more expensive than only Cleveland ($29,788), Pittsburgh ($30,177), St. Louis ($31,275) and Cincinnati ($31,850). (San Francisco was the least affordable; median-price-home buyers need to earn $137,129 a year there.) More than 80% of homes for sale in Detroit are within reach of the middle class, compared with only 20% in New York and Los Angeles and 14% in San Francisco, according to real-estate website Trulia.
It’s also possible to live large in Detroit. “The duplex house I lived in 35 years ago on Detroit’s east side is still a beauty,” says Ross Eisenbrey, vice president of the Economic Policy Institute and a resident of Washington, D.C. He recently revisited it: The home has two units, each with leaded-glass windows, fireplace, Florida room, walk-in pantry, two bedrooms and kitchen. It sold for less than $50,000 two years ago. The lot next door can be bought for $1,000. “Once Detroit gets through the bankruptcy, restores city services, and makes progress on job creation, it will be an amazing value,” he adds.
Wall Street Journal June 27, 2014 -
Also, the evidence doesn’t entirely support the idea that policies that encourage businesses to invest more will actually help the average worker. This chart from the Economic Policy Institute shows how worker productivity–which increases when firms invest in equipment that makes workers efficient–has diverged from median pay.
As you can see, over the past 30 years, the growth in productivity and wages have decoupled, giving the middle class voter much less reason to care about whether the wealthy are encouraged to invest in their businesses through the tax code.
Fortune June 24, 2014 -
It’s not until the final three paragraphs that Mankiw explains his economic theory for why inherited wealth is good for the economy. Allowing parents to bequest wealth to their kids, he argues, incentivizes them to save. Those savings are then put to productive use. “Because capital is subject to diminishing returns, an increase in its supply causes each unit of capital to earn less,” he writes. “And because increased capital raises labor productivity, workers enjoy higher wages.” This could be a legitimate argument if workers had actually been reaping the reward from increased labor productivity. But as a report from the Economic Policy Institute shows, workers have seen their compensation barely rise over the past 40 years, despite significant gains in productivity:
The New Republic June 24, 2014 -
The Ed Show June 24, 2014 -
MSNBC June 24, 2014 -
A separate paper, from left-leaning economist Dean Baker, argues that the trade deficit is a significant impediment to full employment. U.S. imports exceeded exports by $500 billion in 2013—that is, $500 billion of American demand for goods and services supported jobs overseas. In response, Baker proposes lowering the value of the dollar and cracking down on currency manipulators like China who artificially lower the value of their currency so that their goods and services are cheaper, boosting exports. Yet, trade policy is not an exciting or accessible issue to most voters. A candidate could include it as part of their economic platform, but it cannot form the backbone of it.
Bernstein and Larry Mishel, the president of the Economic Policy Institute, have both proposed a monetary policy regime that prioritizes low unemployment along with low inflation. Given the Federal Reserve’s independence from the federal government, though, it’s hard to imagine how better monetary policy could become a focal point of a campaign, as it hardly energizes voters. “You are basically getting at the fundamental problem for Democrats in terms of their economic agenda, in terms of the relationship between what they can run on and what they can actually do,” Teixeira said. “The public is not Keynesians or anything close to it. They don’t understand the relationship between spending, debt and growth. And, therefore, it’s the hardest sell.” Republicans, as the minority party, can simply promise a change from the Democratic agenda, regardless of voters’ understanding of their actual economic proposals.
New Republic June 24, 2014 -
Pedro’s Op-Ed, which ran in the WSJ. You can find it online here. Thanks so much to Danyoung and Erica for quick acquisition of key points, both included in this final version
Wall Street Journal June 24, 2014 -
Third, and perhaps most important, the distribution of wages has spread out drastically. According to compilations by the Economic Policy Institute, the median real wage—that is, the real wage earned exactly in the middle of the wage distribution—rose by a mere 5% over the years 1979-2012. The implied annual rate of increase is close enough to zero that you can taste it. By contrast, the wage at the 95th percentile rose a healthy 39% over those same 33 years. And the rewards for work grew vastly faster in the top 1%—that’s the top 1% in wage earnings, not in total incomes—where the increase was 154% over this period. Let’s remember that the top 1% now comprises roughly 1.35 million workers. So we are not only talking about CEOs, movie stars and hedge-fund operators here—though their earnings have shot off the charts.
At the bottom, things have been truly dismal. At the 20th percentile of the wage distribution, real wages were essentially flat over the 33 years; at the 10th percentile, they fell 6%. And this is for people who have jobs. Most of the poor do not.
Wall Street Journal June 24, 2014 -
The national jobless rate was 6.3% in May, down from 7.5% a year earlier, and nonfarm employers added more than 200,000 jobs for a fourth straight month. Most states saw their jobless rates fall or hold steady in May from the prior month, and the unemployment rates in 49 states fell from a year earlier. (Alabama was the only exception.)
But the U.S. labor force participation rate has dropped in recent years, in part because unemployed workers stopped looking for jobs and dropped out of the labor force. “There’s been so many exits from the labor force in the last few years that, at this point, we’re seeing exits slowing,” said David Cooper, senior economic analyst at the Economic Policy Institute, a left-leaning Washington think tank. “But so many people are on the sidelines, and we’re not seeing them resume their job searches.”
Below is a sortable chart for all 50 U.S. states, plus the District of Columbia, Puerto Rico and the Virgin Islands, showing their peaks for payroll employment before or after the recession and where they stood in May.
Wall Street Journal June 24, 2014