During the last presidential campaign there was much mentioned about the War on Women. What is the truth on this subject? Most certainly on the international stage, in many countries women are treated like chattels. In Muslim countries where Shariah Law dominates, a woman who is raped can be put to death, while her perpetrator goes free. This is a the true war on women.
But what about in modern western countries? Some would argue that in the United States, because of a pay gap between the genders, that women are being discriminated against. Statistics seem to bear this out. Economists determine this by charting plot lines by a method called "multivariate ordinary least squares regression," in which a computer essentially runs a line through a cloud of data points. When the computer run compares men vs women, women clearly earn less. But before we run to conclusions based on raw data, let's look deeper into the stats. First, the pay gap has declined substantially over the years. Before industrialization, the pay gap was around 70%. By the 1970s the gap had dropped to 40%. In 2007 it was 19%.
Today, 60% of the college graduates are women in the US. It is similar in other advanced countries. If the woman has the right college degree, employers most definately want to tap into that resource. Among the jobs where women with college degrees earn at least as much as men are computer engineer, petroleum engineer (and a variety of other engineering occupations), journalist, portfolio manager, and medical technologist. But in most of these fields, especially engineering, there are far fewer women than men. But over time, even in fields like engineering, statisically a woman will earn less. Why?! The answer can be summed up in one word....childrearing. The following needs to be emphasised. For every year a woman delays having her first child, her lifetime earnings will rise by 10%. By the same token, among college educated, never-married women with no children who worked full-time and were from 40 - 64 years old (that is, beyond child-bearing years), men averaged $40,000 a year while women averaged $47,000. It should be no surprise that if a woman takes a few years off to raise a child, that this is going to interrupt her climb to the top, and skew the data.
The upshot is that, indeed, the war on women does not exists....at least in this country. The reader would be wise to add the economic filter to anything coming from a politician's mouth.
Monday, November 19, 2012
Sunday, October 7, 2012
The Financial Meltdown Of Greece -- Is It Coming To America?
Many have seen the riots in the streets of Athens, as the government tries to pull back on benefits which can be summed up in one word -- lavish. The average government job pays almost 3 times the average private-sector job. The national railroad has average revenues of 100 million euros against an annual wage bill of 400 million euros, plus 300 million euros in other expenses. The former Minister of Finance, Stefanos Manos, pointed out that it would be cheaper to put all of Greece's rail passengers into taxi cabs. By the same token, the Greek public school system is the site of breathtaking inefficiency. One of Europe's lowest ranked, it nonetheless employs four times as many teachers per pupil as the top ranked system in Finland. The retirement age for most of the jobs in Greece is 55 for men, and 50 for women.
But the lack of fiscal sobriety is not confined to just Greece. Ireland, Portugal, Spain, Italy, and even France are drowning in debt obligations that they need help with to prevent a default. The Germans are about the only ones who can help. They just need to suck it up, work harder, and pay for everyone else. It's either that, or the Euro Zone is dead.
We see these trends now manifesting itself in the US. The fiscal debt of $16 trillion by the Federal Government is well known. But more and more governments on the local level are already throwing in the towel with an inability to pay off their debts. The only solution is to declare bankruptcy. Once thriving San Jose, California has done just that. Through the years, the police and firefighters had worked out deals by which they earn more in retirement than they ever made while working. Take sick leave. It is good to give workers a paid day off when they are ill. But we have gone from that to letting workers accumulate it and cash it in for hundreds of thousands of dollars when they are done working. Is this what public service is really about? What finally put San Jose over the edge was when pensions and health costs reached $245 million which was exactly half of the total annual budget. If this were to continue, the city would become nothing but a vehicle to pay retirement costs for its former employees.
Back to Greece....is it the canary in the coal mine? Governments globally, and at all levels, need to re-think the concept of debt, and what they can afford. When the canary dies, the miner will immediately do an about-face, and get out of that mine. Governments likewise need to take a sobering look at the warning signs around them.
But the lack of fiscal sobriety is not confined to just Greece. Ireland, Portugal, Spain, Italy, and even France are drowning in debt obligations that they need help with to prevent a default. The Germans are about the only ones who can help. They just need to suck it up, work harder, and pay for everyone else. It's either that, or the Euro Zone is dead.
We see these trends now manifesting itself in the US. The fiscal debt of $16 trillion by the Federal Government is well known. But more and more governments on the local level are already throwing in the towel with an inability to pay off their debts. The only solution is to declare bankruptcy. Once thriving San Jose, California has done just that. Through the years, the police and firefighters had worked out deals by which they earn more in retirement than they ever made while working. Take sick leave. It is good to give workers a paid day off when they are ill. But we have gone from that to letting workers accumulate it and cash it in for hundreds of thousands of dollars when they are done working. Is this what public service is really about? What finally put San Jose over the edge was when pensions and health costs reached $245 million which was exactly half of the total annual budget. If this were to continue, the city would become nothing but a vehicle to pay retirement costs for its former employees.
Back to Greece....is it the canary in the coal mine? Governments globally, and at all levels, need to re-think the concept of debt, and what they can afford. When the canary dies, the miner will immediately do an about-face, and get out of that mine. Governments likewise need to take a sobering look at the warning signs around them.
Wednesday, August 22, 2012
Is The Middle Class Disappearing?
The Middle Class is a relatively new concept in human history. For most of it, virtually everyone was poor, with just a few rich people at the top. But the Industrial Revolution changed that. It brought about a novel concept.....economic growth. As economies grew, the big winners were the poor. Their standard of living steadily improved, and the middle class was born. In the US, it arose largely without government intervention. For example, workers at Ford Motor Company made twice on an inflation-adjusted-after-tax basis in 1915 than they did in 2010. And this was before unions. Wages rose and prices fell because of gains in productivity, not because some bureaucrat or union official mandated it.
So here we are now in the 21st century. Is the middle class disappearing? Most certainly in every economic slowdown the middle class takes a hit. But like previous sluggish economies, we will recover from this one. But will the middle class recover with it?
First of all, if we are to look at the middle class ten years ago, and compare it to today, the people in it will have changed. Many of the poor have moved into it, and others have moved up to a higher income. That is the miracle of a vibrant market economy. Of course some may have failed and fallen. There are no guarantees. But in general, the middle class is alive and well. For example in 1967, the average real (inflation adjusted) income for the middle class (the 14th to 16th percentile for income distribution) was $43,000. In 2007 it was $61,000*. That is a 42% jump in their standard of living!
And how about their ability to move up and out of the middle class? More good news. In 1967, only one in twenty had real incomes of $100,000 or more. In 2005, one is six families did. In short, there are many today who are claiming that there is a "disappearing middle class". Don't believe it. The middle class is alive and well, and will do even better as the economy recovers.
* For examples see https://www.census.gov/hhes/www/income/data/historical/people/
Table P-7; Median & Mean Income; All Races
So here we are now in the 21st century. Is the middle class disappearing? Most certainly in every economic slowdown the middle class takes a hit. But like previous sluggish economies, we will recover from this one. But will the middle class recover with it?
First of all, if we are to look at the middle class ten years ago, and compare it to today, the people in it will have changed. Many of the poor have moved into it, and others have moved up to a higher income. That is the miracle of a vibrant market economy. Of course some may have failed and fallen. There are no guarantees. But in general, the middle class is alive and well. For example in 1967, the average real (inflation adjusted) income for the middle class (the 14th to 16th percentile for income distribution) was $43,000. In 2007 it was $61,000*. That is a 42% jump in their standard of living!
And how about their ability to move up and out of the middle class? More good news. In 1967, only one in twenty had real incomes of $100,000 or more. In 2005, one is six families did. In short, there are many today who are claiming that there is a "disappearing middle class". Don't believe it. The middle class is alive and well, and will do even better as the economy recovers.
* For examples see https://www.census.gov/hhes/www/income/data/historical/people/
Table P-7; Median & Mean Income; All Races
Monday, July 16, 2012
Evolution -- A Theory In Crisis
In 1859, Charles Darwin published his classic work "The Origin Of Species". By 1900, virtually all of the scientific community had accepted his thesis of evolution as a fact. In 1959, at the centennial celebration in Chicago of the publishing of Darwin's book, keynote speaker Julian Huxley stated:
"The earth was not created, it evolved. So did all the animals and plants that inhabit it, including our human selves, mind and soul as well as brain and body. So did religion....Finally, the evolutionary vision is enabling us to discern, however incompletely, the lineaments of the NEW RELIGION that we can be sure will arise to serve the needs of the coming era."
Indeed, the science community has protected their investment in Darwinism with religious zeal. They have needed to because when evolution started creeping into high school text books in the early to mid 20th century, conservative Protestant groups pushed back and in a number of States, laws were passed to require a "balanced treatment" of evolution in biology text books. But one by one these were struck down as unconstitutional, culminating in a 1987 U.S. Supreme Court ruling against Louisiana's Balanced Treatment Act. The Neo-Darwinian Synthesis is now locked in with no options to challenge it.
The upshot is that students in the public schools are only exposed to this new religion of Julian Huxley. Why is this a problem? Imagine a room in which a body lies crushed flat as a pancake. A dozen detectives crawl around looking for clues. In the middle of the room next to the body stands a large gray elephant. The detectives carefully avoid bumping into the pachyderm's legs as they crawl around with their magnifying glasses. Over time they get frustrated with their lack of progress. You see, the text books for detectives say they must "get their man", so they never consider the elephant. This "elephant block" is labeled "intelligent design". The conclusion of intelligent design flows naturally, not from the sectarian sacred books, but rather from the data itself. Given that, let's examine some of the problems with this materialistic view of the world.
The first problems is origins. That is, neo-Darwinism says nothing about how life got started from a wash of inorganic chemicals. Evidence of complex bacterial life stretch back as far as 3.8 billion years ago. Fossil remains were found in the Isua series in southwest Greenland, the "North Pole" region of Australia, and the Pilbara Block in western Australia. Almost immediately after the period of continuous meteorite bombardment (most of which were sterilization events) ended, complex self-replicating life appears. These creatures had fully functioning genetic code which enabled them to feed, excrete, and replicate. Richard Dawkins in his book The Selfish Gene, states, "A gene is simply a chemical compound....a purely material substance without a will, a soul, or purpose. It mechanically replicates itself...". Fine, but where did the gene come from? How did it come up with the genetic program with it's four letter alphabet and complex copying mechanisms which even has error checking mechanisms along with instructions on when to start reading the code and stop reading it? Even Dawkins is puzzled how this could have been pulled off so quickly. He even speculates on explanations like panspermia where perhaps the genetic code was planted here by aliens!
The second problem is with the fossil record itself. One of the biggest mysteries is the Cambrian Explosion. In the pre-Cambrian fauna we see precious little evidence of complex life. Basically the typical life form were various classes of worms. Then, in a geological millisecond every form of phyla (body plan) that we see today appears in the fossil record. In short, we see eons of time where there is only stasis (steady state with no activity), then BANG....complex creatures (metazoans) appear with fully formed respiratory systems, cardiovascular systems, skeletal systems, digestive systems, reproductive systems, etc etc.
Stephen Jay Gould and Niles Eldredge attempts to explain how nature pulled this off with their "punctuated equilibrium" thesis. It states that species might evolve in isolated populations through rapid individual selection and ultimately replace the parental type. But one thing you will always note in these theories is the admitted speculation. The thesis is glutted with conditionals such as "might", "should", "could", "perhaps", and the ubiquitous "if". The truth is that nothing can explain what we see in the fossil record. Not punctuated equilibrium, not macro mutations, not saltation, not genetic drift, nothing. These theories cannot explain the evolution of a new body part, let alone a complete body plan that we see in the early Cambrian.
This just scratches the surface. But to conclude, it is ashame that our children are not exposed to some of the problems with evolution. Micro evolution is a fact. Darwin's finches prove that. But we see genetic barriers in a higher taxa of animals. Those barriers prevent the mating of diverse creatures. The animal genome does experience a certain elasticity up to the genus level. All science agrees with that. But then to extrapolate that to macro evolution is to completely ignore the scientific method (observation and testing). The important thing is to always challenge, and never blindly accept. Especially challenge those with impressive titles or fancy letters after their name.
"The earth was not created, it evolved. So did all the animals and plants that inhabit it, including our human selves, mind and soul as well as brain and body. So did religion....Finally, the evolutionary vision is enabling us to discern, however incompletely, the lineaments of the NEW RELIGION that we can be sure will arise to serve the needs of the coming era."
Indeed, the science community has protected their investment in Darwinism with religious zeal. They have needed to because when evolution started creeping into high school text books in the early to mid 20th century, conservative Protestant groups pushed back and in a number of States, laws were passed to require a "balanced treatment" of evolution in biology text books. But one by one these were struck down as unconstitutional, culminating in a 1987 U.S. Supreme Court ruling against Louisiana's Balanced Treatment Act. The Neo-Darwinian Synthesis is now locked in with no options to challenge it.
The upshot is that students in the public schools are only exposed to this new religion of Julian Huxley. Why is this a problem? Imagine a room in which a body lies crushed flat as a pancake. A dozen detectives crawl around looking for clues. In the middle of the room next to the body stands a large gray elephant. The detectives carefully avoid bumping into the pachyderm's legs as they crawl around with their magnifying glasses. Over time they get frustrated with their lack of progress. You see, the text books for detectives say they must "get their man", so they never consider the elephant. This "elephant block" is labeled "intelligent design". The conclusion of intelligent design flows naturally, not from the sectarian sacred books, but rather from the data itself. Given that, let's examine some of the problems with this materialistic view of the world.
The first problems is origins. That is, neo-Darwinism says nothing about how life got started from a wash of inorganic chemicals. Evidence of complex bacterial life stretch back as far as 3.8 billion years ago. Fossil remains were found in the Isua series in southwest Greenland, the "North Pole" region of Australia, and the Pilbara Block in western Australia. Almost immediately after the period of continuous meteorite bombardment (most of which were sterilization events) ended, complex self-replicating life appears. These creatures had fully functioning genetic code which enabled them to feed, excrete, and replicate. Richard Dawkins in his book The Selfish Gene, states, "A gene is simply a chemical compound....a purely material substance without a will, a soul, or purpose. It mechanically replicates itself...". Fine, but where did the gene come from? How did it come up with the genetic program with it's four letter alphabet and complex copying mechanisms which even has error checking mechanisms along with instructions on when to start reading the code and stop reading it? Even Dawkins is puzzled how this could have been pulled off so quickly. He even speculates on explanations like panspermia where perhaps the genetic code was planted here by aliens!
The second problem is with the fossil record itself. One of the biggest mysteries is the Cambrian Explosion. In the pre-Cambrian fauna we see precious little evidence of complex life. Basically the typical life form were various classes of worms. Then, in a geological millisecond every form of phyla (body plan) that we see today appears in the fossil record. In short, we see eons of time where there is only stasis (steady state with no activity), then BANG....complex creatures (metazoans) appear with fully formed respiratory systems, cardiovascular systems, skeletal systems, digestive systems, reproductive systems, etc etc.
Stephen Jay Gould and Niles Eldredge attempts to explain how nature pulled this off with their "punctuated equilibrium" thesis. It states that species might evolve in isolated populations through rapid individual selection and ultimately replace the parental type. But one thing you will always note in these theories is the admitted speculation. The thesis is glutted with conditionals such as "might", "should", "could", "perhaps", and the ubiquitous "if". The truth is that nothing can explain what we see in the fossil record. Not punctuated equilibrium, not macro mutations, not saltation, not genetic drift, nothing. These theories cannot explain the evolution of a new body part, let alone a complete body plan that we see in the early Cambrian.
This just scratches the surface. But to conclude, it is ashame that our children are not exposed to some of the problems with evolution. Micro evolution is a fact. Darwin's finches prove that. But we see genetic barriers in a higher taxa of animals. Those barriers prevent the mating of diverse creatures. The animal genome does experience a certain elasticity up to the genus level. All science agrees with that. But then to extrapolate that to macro evolution is to completely ignore the scientific method (observation and testing). The important thing is to always challenge, and never blindly accept. Especially challenge those with impressive titles or fancy letters after their name.
Tuesday, June 12, 2012
The Limits To Growth
For most of the history of mankind, there was no such thing as economic growth. People were born, and died with the same standard of living...which was very low. That all changed with the Industrial Revolution. The annual income of the average person started steadily growing. And on a macro level, it had a multiplier effect and fed on itself. It would increase by 2 - 3% a year. In 10 years the average worker would find that his standard of living had improved by 25%! This growth has lifted mass populations out of abject poverty. Not every country has shared in this growth. It holds generally true that the countries in the vicinity of the equator have not experienced the degree of growth that the rest of the world has.
But are there limits to growth? From Thomas Malthus to Paul Ehrlich, there have been many prophets of doom which have ultimately proven to be wrong. But there certainly must be a limit. The planet only has so many resources, and as the population expands, and as their standard of living improves, they will tax the carrying load of Mother Earth. How could this carrying capacity be measured based on the continued growth? In the early 1970s, Jay Forrester of MIT developed a computer model in an attempt to determine these limits. He fed into the model variables like population growth, agricultural production, natural resources, industrial production, and pollution. The result was growth lines which continued up and up, until various inputs became exhausted, and the entire system would collapse. From this work came the book "Limits To Growth" (Donella Meadows) which predicted catastrophe unless policy makers put drastic curbs on not only population growth, but the steady improvement of people's standard of living which puts added pressure on resource depletion and pollution.
How is their prediction going? Many of the scenarios (there were 10) predicted that by now (2012), many vital resources would be in their final stages. This has proved to be incorrect. For example, by now oil was supposed to have been so depleted that the global economic engine would be severely strained. But new technologies unheard of in Professor Forrester's day have greatly expanded the potential reserves. This is the missing link in most of these clever models which are supposed to be a crystal ball into the future. Looking into the future there are too many unknowns that skew the model's results. But looking at that one resource of oil, ultimately it will be depleted. What the model doesn't take into consideration is the power of economics. As the supply of oil approaches scarcity, the price will be so high that only the rich could afford it, and this will naturally spur a whole new industry of technological replacements. Even today we see the beginnings of that with electric and hybrid cars.
We are also seeing a significant drop in population growth. When their book was written in the early 70's, the world population was expanding at over 2% a year. It has now dropped to around 1.2%. Some countries are even very concerned that they are not producing enough children to support the elderly population in their retirement. It is now predicted that the world population will continue to slowly grow until around 2050 when it will level off at 9 billion people. Pollution levels are still bad in rapidly growing countries like China and India, but this is typical in countries that are in the early stages of their growth cycle when pollution levels rise. Ultimately they will form EPA type structures to control the pollution.
What about issues like global warming? Is it really anthropogenic (man made)? Many will say, "yes", and that it is "settled science". But is it? Once again, the computer models show that a disaster is looming. But the efficacy of these models is questionable. For example, if we set our baseline at the mid-70's and project forward, it does show a significant warming trend. But if we set the base at 1934, or 1998, it show just the opposite. Then there are elements not modeled for like the "Fertilizer Effect". That is, plants thrive on higher levels of green house gases, and will expand acting as a buffer against too high levels. Ken Caldeira, who runs the ecology lab at Stanford for the Carnegie Institution, estimates that a doubling of carbon dioxide would yield a 70% increase in plant growth....an obvious boon for agriculture. Our planet is filled with self-correcting mechanisms like this.
In short, are there limits to growth? You betcha. But man has proved to be very clever in making adjustments, and simple economics, rather than massive policy changes will drive our behavior. In the meantime, let us all have profound respect for this living planet we call Earth...our home.
But are there limits to growth? From Thomas Malthus to Paul Ehrlich, there have been many prophets of doom which have ultimately proven to be wrong. But there certainly must be a limit. The planet only has so many resources, and as the population expands, and as their standard of living improves, they will tax the carrying load of Mother Earth. How could this carrying capacity be measured based on the continued growth? In the early 1970s, Jay Forrester of MIT developed a computer model in an attempt to determine these limits. He fed into the model variables like population growth, agricultural production, natural resources, industrial production, and pollution. The result was growth lines which continued up and up, until various inputs became exhausted, and the entire system would collapse. From this work came the book "Limits To Growth" (Donella Meadows) which predicted catastrophe unless policy makers put drastic curbs on not only population growth, but the steady improvement of people's standard of living which puts added pressure on resource depletion and pollution.
How is their prediction going? Many of the scenarios (there were 10) predicted that by now (2012), many vital resources would be in their final stages. This has proved to be incorrect. For example, by now oil was supposed to have been so depleted that the global economic engine would be severely strained. But new technologies unheard of in Professor Forrester's day have greatly expanded the potential reserves. This is the missing link in most of these clever models which are supposed to be a crystal ball into the future. Looking into the future there are too many unknowns that skew the model's results. But looking at that one resource of oil, ultimately it will be depleted. What the model doesn't take into consideration is the power of economics. As the supply of oil approaches scarcity, the price will be so high that only the rich could afford it, and this will naturally spur a whole new industry of technological replacements. Even today we see the beginnings of that with electric and hybrid cars.
We are also seeing a significant drop in population growth. When their book was written in the early 70's, the world population was expanding at over 2% a year. It has now dropped to around 1.2%. Some countries are even very concerned that they are not producing enough children to support the elderly population in their retirement. It is now predicted that the world population will continue to slowly grow until around 2050 when it will level off at 9 billion people. Pollution levels are still bad in rapidly growing countries like China and India, but this is typical in countries that are in the early stages of their growth cycle when pollution levels rise. Ultimately they will form EPA type structures to control the pollution.
What about issues like global warming? Is it really anthropogenic (man made)? Many will say, "yes", and that it is "settled science". But is it? Once again, the computer models show that a disaster is looming. But the efficacy of these models is questionable. For example, if we set our baseline at the mid-70's and project forward, it does show a significant warming trend. But if we set the base at 1934, or 1998, it show just the opposite. Then there are elements not modeled for like the "Fertilizer Effect". That is, plants thrive on higher levels of green house gases, and will expand acting as a buffer against too high levels. Ken Caldeira, who runs the ecology lab at Stanford for the Carnegie Institution, estimates that a doubling of carbon dioxide would yield a 70% increase in plant growth....an obvious boon for agriculture. Our planet is filled with self-correcting mechanisms like this.
In short, are there limits to growth? You betcha. But man has proved to be very clever in making adjustments, and simple economics, rather than massive policy changes will drive our behavior. In the meantime, let us all have profound respect for this living planet we call Earth...our home.
Tuesday, May 15, 2012
INCOME INEQUALITY in the United States.
"The worst form of inequality is to try to make unequal things equal." -- Aristotle
"The development of free markets has greatly lessened the extent of inequality...Nowhere is the gap between rich and poor wider, nowhere are the rich richer and the poor poorer, than in those countries that do not permit free markets to operate." -- Milton Friedman *
"No American is ever made better off by pulling a fellow American down, and every American is made better off whenever any one of us is better off. A rising tide raises all boats." -- John F. Kennedy
The famous quote of the French Revolution was "Liberty, Equality, Fraternity". Problem is that liberty and equality are logical opposites. Some people are smarter than others. Some people work harder than others. Some people are more talented or attractive then others. If you are given the liberty to exploit those differences, the results will be unequal.
Income Inequality has been increasing in this country since the mid 1970's. In 2005, the 20% of households with the lowest incomes averaged around $11,000/year; the top 20% averaged about $160,000. So what has happened in the last few decades to increase the spread between the rich and the poor? Basically three things:
"The development of free markets has greatly lessened the extent of inequality...Nowhere is the gap between rich and poor wider, nowhere are the rich richer and the poor poorer, than in those countries that do not permit free markets to operate." -- Milton Friedman *
"No American is ever made better off by pulling a fellow American down, and every American is made better off whenever any one of us is better off. A rising tide raises all boats." -- John F. Kennedy
The famous quote of the French Revolution was "Liberty, Equality, Fraternity". Problem is that liberty and equality are logical opposites. Some people are smarter than others. Some people work harder than others. Some people are more talented or attractive then others. If you are given the liberty to exploit those differences, the results will be unequal.
Income Inequality has been increasing in this country since the mid 1970's. In 2005, the 20% of households with the lowest incomes averaged around $11,000/year; the top 20% averaged about $160,000. So what has happened in the last few decades to increase the spread between the rich and the poor? Basically three things:
1.) Technology -- the explosion of technology has eliminated a lot of lower skill jobs. Technology has markedly improved the productivity (and therefore salaries) of workers, but they must upgrade their skills to be interfaced with the technology. For example, a worker with a backhoe can do the job of five guys with a shovel in half the time. There go five jobs. But it takes skilled workers to build the backhoe, maintain it, and repair it.
2.) The Global Economy -- Companies now have new markets for their products, but they also must search out cheaper labor if they are producing a product that is labor-intensive to manufacture. They are now competing with other international companies who are producing similar products in low labor cost markets. Thus, the domestic company must also find those low cost labor markets or die. This does not bode well for high cost unions in the rust belt.
3.) Increase in Single Parent Households -- 40% of one-parent families are below the poverty line. Only 7% are below in two-parent families.
Economists express inequality of income graphically with what is called the Lorenz Curve. The deviation from perfect equality is called the Gini Coefficient. A coefficient of zero means all households have exactly the same income. A coefficient of 100 means that one household has all the income. In 1975, the US was at 36. Today it is at 47. In contrast, the EU is 31, and Brazil is 60. Some would say the US is not bad. Others would say it is unacceptable. Depends on your politics.
It is interesting to note that as poverty decreases, income inequality increases. Since 1820, the global Gini Coefficient has risen 30%. During the same period, however, poverty fell drastically. More currently, between 1980 and 2005, the Gini increased in 80% of the OECD nations as well as Russia and China.
In spite of the fact that in recent years the top earners have reaped higher gains, still all income groups have increased their wealth. According to the Congressional Budget Office, from 1979 to 2007, even the lowest 20% still had an 18% growth in inflation adjusted income. http://cbo.gov/publication/42729
The principle reason for growth in the income of rich households is not that their compensation has exploded. Rather it is that their numbers have significantly grown. More and more households have moved out of the middle class and into the top quintile of earners. **
By the same token, lower tax rates have made the tax system MORE progressive. In 1980, the top 1% earners had a top marginal tax rate of 70%. At that time they accounted for 20% of all tax payments. With todays top marginal rate much lower, they now account for 40% of all income tax payments.
One word of caution about economic statistics. Be careful of the stat for "households". The reason is that the number of people per household has been declining for years. It, therefore, also follows that the number of people earning income has also fallen in the average household. Comparing households of highly varying sizes can mean comparing apples and oranges. A much more revealing stat is "income per capita". If you see that figure dropping over the years, then take note.
It is interesting to note that as poverty decreases, income inequality increases. Since 1820, the global Gini Coefficient has risen 30%. During the same period, however, poverty fell drastically. More currently, between 1980 and 2005, the Gini increased in 80% of the OECD nations as well as Russia and China.
In spite of the fact that in recent years the top earners have reaped higher gains, still all income groups have increased their wealth. According to the Congressional Budget Office, from 1979 to 2007, even the lowest 20% still had an 18% growth in inflation adjusted income. http://cbo.gov/publication/42729
The principle reason for growth in the income of rich households is not that their compensation has exploded. Rather it is that their numbers have significantly grown. More and more households have moved out of the middle class and into the top quintile of earners. **
By the same token, lower tax rates have made the tax system MORE progressive. In 1980, the top 1% earners had a top marginal tax rate of 70%. At that time they accounted for 20% of all tax payments. With todays top marginal rate much lower, they now account for 40% of all income tax payments.
One word of caution about economic statistics. Be careful of the stat for "households". The reason is that the number of people per household has been declining for years. It, therefore, also follows that the number of people earning income has also fallen in the average household. Comparing households of highly varying sizes can mean comparing apples and oranges. A much more revealing stat is "income per capita". If you see that figure dropping over the years, then take note.
How would we reduce the spread between the rich and the poor? One solution is the progressive tax system. But we already have one of the most progressive tax in the industrial world, and soaking the rich doesn't hurt the rich as much as it hurts those who depend on the rich. The other possibility is education of our youth. But with mandatory kindergarten required in all states, we now have 13 years of taxpayer funded education. K - 12 education takes up about a third of all state and local spending, yet the public is led to believe that schools are getting shortchanged. School spending, adjusted for inflation, has increased 140% between 1970 and 2007. Meanwhile, during this same period, the National Assessment of Educational Progress tests showed that reading and math scores were flat, and science scores went down. Then there is the Community College system which is heavily taxpayer funded. Then we have the Pell Grant for the poorer students, and about 90% of Community College students qualify for that. One could argue that there are many flaws in our educational system, but it is not from a lack of funding.
One final note....when income statistics leave out both taxes on people in upper income brackets and transfers to people in lower income brackets, they exaggerate inequalities as of a given snapshot of time. By the same token, even though the spread in incomes has increased, the spread in consumption between the rich and poor has not. The consumption of the rich has stayed the same. What, then, do they do with their added income? They invest it. Increased investing means more plant and equipment which means more jobs.
One final note....when income statistics leave out both taxes on people in upper income brackets and transfers to people in lower income brackets, they exaggerate inequalities as of a given snapshot of time. By the same token, even though the spread in incomes has increased, the spread in consumption between the rich and poor has not. The consumption of the rich has stayed the same. What, then, do they do with their added income? They invest it. Increased investing means more plant and equipment which means more jobs.
In a perfect world everyone would be beautiful, handsome, rich, and have a wonderful personality. I guess we have a ways to go.
* Capitalism and Freedom; p.169; Free to Choose; p. 137
** The Fourth Great Awakening -- The Future Of Egalitarianism; Robert Fogal; p. 221
* Capitalism and Freedom; p.169; Free to Choose; p. 137
** The Fourth Great Awakening -- The Future Of Egalitarianism; Robert Fogal; p. 221
Tuesday, May 8, 2012
CHINA -- An Economic Miracle. Success of Socialism or Capitalism?
Chairman Mao's command economy, and specifically his socialistic program called The Great Leap Forward, was an unmitigated failure. In fact, in the 1970's China was facing mass starvation. When Mao died, Deng Xiaoping took over. Realizing the old model was not working, he adopted free market ideas. Deng started experimenting modestly by allowing farmers to keep their own excess of production. That is, once they met their modest state quotas they could keep and sell their surplus...for whatever price the market would bear. The rest of the story is now etched in history with the biggest economic boom in recorded history. They went from a complete basket case to a country which will be number one in GDP, surpassing the US by 2022. As Deng said, "It doesn't matter what color a cat is as long as it catches the mice." But isn't China still a Communist country? Politically they are....dissidents are jailed, and the internet is censored. But in many ways, economically they are freer than the US.
Should the US be concerned that they should lose the GDP race? Not really. We will still be far ahead of China in the per capita GDP stat. In short, the standard of living for the average American will continue to far exceed that of the average Chinese citizen.
The Communist Party is still securely in power. There are still a few state-run companies who inefficiently plod along. But a free market based system is here to stay. In the old Communist system foreign trade and investment were discouraged. Now it is a virtual free for all with many foreign companies setting up manufacturing in China. China's early growth wasn't the result of increases in education, levels of investment, or government intervention. It was quite simply the result of the government getting out of the way and letting market forces take over.
Of course, this rapid growth which has averaged around 8% a year for the last 2 decades, has its dark side. There has been a surge of heavy capital intensive industries which use a large amount of raw materials and energy. Also, until recently there has not been any EPA type of organization to keep pollution in check, and the environment has suffered. China needs a broad shift away from heavy industry and more toward domestic consumption and the providing of services.
As a result of the economic boom, vast numbers of workers are moving from rural agriculture to urban manufacturing. In spite of this shift, because of the global demand for Chinese products, there has developed a shortage of labor. That will bring an end to the era of cheap labor.
So what can we conclude from this economic miracle? Was it the "War On Poverty" that propelled China? Perhaps a "New Frontier", or "Great Society", or "New Deal" social engineering type of program? No, none of these. It was just a change from the central command economy of socialism to a market based one that created this miracle.
http://www.kingworldgraphics.com/sb
POSTSCRIPT: China has been buying our debt for a number of years. We've actually been playing a cruel joke on them. We've persuaded them to send us their goods, and in exchange we give them pictures of George Washington. If they want to redeem their bonds, we are quite willing to pay them in our currency at a depreciated rate of about 20 cents on the dollar.
Thursday, April 19, 2012
What Is Keynesian Economics, and Does It Work?
A very brief primer on John Maynard Keynes was that he was a strong advocate that Monetary Policy should encourage low interest rates, with the money supply being expanded liberally, and that Fiscal Policy should be such that consumer demand is expanded by government spending, even if a balance of payment deficit results. Today virtually all OECD countries practice Keynesian policies. But the HPAE countries rely on economic growth to lift the poor out of poverty.*
But the above is a very general overview. The devil is in the details. Running a government deficit was a new thought for policy makers in the 1930s. Today, however, virtually every country in the world practices Keynesian economics, and regularly runs deficits. Is this what Keynes wanted? Absolutely not. If he could see today the amount of red ink that is being generated, he would be turning over in his grave. Keynes was a deflation hawk. Deflation can be a killer to an economy. During the Great Depression, with deficit spending, the US had reduced the unemployment rate from 24% to 14%. Not bad. At that point (1937) deflation had been defeated, and Keynes advocated that Roosevelt return to classical economics and started ratcheting down the deficits.** Of course he was ignored, and the unemployment rate started to go up...15%....16%....17%. Politicians had been hooked on now not having to go through that pesky process of balancing the budget every year. Roosevelt's other errors were raising taxes on the wealthy, excise taxes on everyone, and implementing social security which took money out of everyone's weekly paycheck. With the massive spending of World War II, we finally emerged from the depression. Some economists would argue that that degree of deficit spending is exactly what we need. However, WW II spending would have led to horrendous inflation but for wage and price controls. But this strategy, as Richard Nixon found out in the early 1970s, only works under conditions of total war.
Keynesian economics works to a point. It does stimulate demand. But what about supply? Demand is the consumer side of the equation. Supply is the producer....the one who hires people so they have a paycheck and can buy the goods that are produced. By raising taxes on the producer (whether it be corporate taxes or taxes on the wealthy), you will kill or seriously slow down any chance of an economic recovery.
The problem today with most policy makers in governments around the world is that most are lawyers and not economists. Worse, they are lawyers with an agenda. I would lay long odds that none of them have ever read any of the works of Keynes and thus have no idea what he really advocated. But if they are going to call themselves Keynsians, they should know what he really taught.
Unfortunately, in the US, we are making the same policy mistakes that Roosevelt did. There is no threat at all of deflation, yet we are running massive deficits which is building our national debt to $17 trillion as of the date of this writing. The interest payments alone on that debt come to $10 billion a week! That is over half a trillion dollars a year....in interest alone! Think of all we could do for the poor with half a trillion dollars. By the same token the policy makers want to raise taxes on those who are the job creators. Christina Romer, the former head of President Obama's Council of Economic Advisors, studied tax cuts from 1947 to 2005. She found that a tax cut equivalent to 1% of GDP resulted in a 3% growth in GDP if those tax cuts were permanent.*** They need to read her report before proceeding with any tax on the rich. Romer also states the following: "In short, tax increases appear to have a very large, sustained, and highly negative impact on output.......The persistence of the effects is suggestive of supply effects......Tax cuts have a very large and persistent positive output effect." ****
In short, if someone is going to claim they are a disciple of a wise man, they need to know what he really taught.
Postscript: Quotes from Keynes
"Avarice and usury must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight." Essays In Persuasion; p. 372
"Since the human race is still poor, we should be encouraging, not discouraging, investment." General Theory, p. 321
"Aggressive taxation may defeat its own ends by diminishing the income to be taxed." Collective Writings, 21:145
"National debt should be to its own citizens. Moreover, tax rates should never have to be increased to pay for the new debt. " Collective Writings, 20:349
"The boom, not the slump, is the right time for austerity at the Treasury." Collective Writings, Vol 21
*OECD -- Organization for Economic Cooperation and Development which consists of the Euro Zone, the US, and Australia. HPAE -- High Performing Asian Economies which consist of China, Hong Kong, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan, and Thailand.
** London Times -- Jan 12 - 14, 1937; Collective Writings, Vol 21, p. 385
Zombie Economics; Professor John Quiggin, p. 87
*** Forbes 2/16/09
**** The Macroeconomic Effects of Tax Changes; American Economic Review 100 (June 2010)
But the above is a very general overview. The devil is in the details. Running a government deficit was a new thought for policy makers in the 1930s. Today, however, virtually every country in the world practices Keynesian economics, and regularly runs deficits. Is this what Keynes wanted? Absolutely not. If he could see today the amount of red ink that is being generated, he would be turning over in his grave. Keynes was a deflation hawk. Deflation can be a killer to an economy. During the Great Depression, with deficit spending, the US had reduced the unemployment rate from 24% to 14%. Not bad. At that point (1937) deflation had been defeated, and Keynes advocated that Roosevelt return to classical economics and started ratcheting down the deficits.** Of course he was ignored, and the unemployment rate started to go up...15%....16%....17%. Politicians had been hooked on now not having to go through that pesky process of balancing the budget every year. Roosevelt's other errors were raising taxes on the wealthy, excise taxes on everyone, and implementing social security which took money out of everyone's weekly paycheck. With the massive spending of World War II, we finally emerged from the depression. Some economists would argue that that degree of deficit spending is exactly what we need. However, WW II spending would have led to horrendous inflation but for wage and price controls. But this strategy, as Richard Nixon found out in the early 1970s, only works under conditions of total war.
Keynesian economics works to a point. It does stimulate demand. But what about supply? Demand is the consumer side of the equation. Supply is the producer....the one who hires people so they have a paycheck and can buy the goods that are produced. By raising taxes on the producer (whether it be corporate taxes or taxes on the wealthy), you will kill or seriously slow down any chance of an economic recovery.
The problem today with most policy makers in governments around the world is that most are lawyers and not economists. Worse, they are lawyers with an agenda. I would lay long odds that none of them have ever read any of the works of Keynes and thus have no idea what he really advocated. But if they are going to call themselves Keynsians, they should know what he really taught.
Unfortunately, in the US, we are making the same policy mistakes that Roosevelt did. There is no threat at all of deflation, yet we are running massive deficits which is building our national debt to $17 trillion as of the date of this writing. The interest payments alone on that debt come to $10 billion a week! That is over half a trillion dollars a year....in interest alone! Think of all we could do for the poor with half a trillion dollars. By the same token the policy makers want to raise taxes on those who are the job creators. Christina Romer, the former head of President Obama's Council of Economic Advisors, studied tax cuts from 1947 to 2005. She found that a tax cut equivalent to 1% of GDP resulted in a 3% growth in GDP if those tax cuts were permanent.*** They need to read her report before proceeding with any tax on the rich. Romer also states the following: "In short, tax increases appear to have a very large, sustained, and highly negative impact on output.......The persistence of the effects is suggestive of supply effects......Tax cuts have a very large and persistent positive output effect." ****
In short, if someone is going to claim they are a disciple of a wise man, they need to know what he really taught.
Postscript: Quotes from Keynes
"Avarice and usury must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight." Essays In Persuasion; p. 372
"Since the human race is still poor, we should be encouraging, not discouraging, investment." General Theory, p. 321
"Aggressive taxation may defeat its own ends by diminishing the income to be taxed." Collective Writings, 21:145
"National debt should be to its own citizens. Moreover, tax rates should never have to be increased to pay for the new debt. " Collective Writings, 20:349
"The boom, not the slump, is the right time for austerity at the Treasury." Collective Writings, Vol 21
*OECD -- Organization for Economic Cooperation and Development which consists of the Euro Zone, the US, and Australia. HPAE -- High Performing Asian Economies which consist of China, Hong Kong, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan, and Thailand.
** London Times -- Jan 12 - 14, 1937; Collective Writings, Vol 21, p. 385
Zombie Economics; Professor John Quiggin, p. 87
*** Forbes 2/16/09
**** The Macroeconomic Effects of Tax Changes; American Economic Review 100 (June 2010)
Subscribe to:
Posts (Atom)