Worst Economic Prescription of the Week
I hate to pick on Kevin Drum twice in a row, but my God is this the worst economic prescription you have read of late:
The only sustainable source of consistent growth is rising median wages. The rich just don't spend enough all by themselves.
The flip side of this, of course, is that rich people are going to have to accept the fact that they don't get all the money anymore. Their incomes will still grow, but no faster than anyone else's.
How do we make this happen, though? I'm not sure. Stronger unions are a part of it. Maybe a higher minimum wage. Stronger immigration controls. More progressive taxation. National healthcare. Education reforms. Maybe it's just a gigantic cultural adjustment. Add your own favorite policy prescription here.
This isn't just a matter of social justice. It's a matter of facing reality. If we want a strong economy, we can only get it over the long term if we figure out a way for the benefits of economic growth to flow to everyone, not just the rich. This is, by far, Barack Obama's biggest economic challenge. Until median wages start rising steadily and consistently, we haven't gotten ourselves back on track.
This is so crazy, its is hard to know where to begin. And since it is after midnight, I will keep it short. But here are a few thoughts:
- Note the embedded theory here of income and wealth, which is really startling. For Drum and most of the left, income is this sort of fountain that spews forth on its own out in the desert somewhere. Rich people are the piggy folks who crowd close to the fountain and take more than their fair share of what is flowing out. There is absolutely no recognition that possibly wealth is correlated with individual initiative, work, intelligence, and behaviors. More on zero-sum economic thinking here and here.
- I am sick and tired of the "stagnant median income" meme. How many times does this have to be debunked? But the quick version is
- Median total compensation per individual is not stagnant, it has risen steadily. The only way to show stagnant incomes is to look only at cash wages, and ignore the shift in compensation value to health care and other non-cash benefits. Also, folks trying to push this meme typically look at household income rather than individual income, but since household sizes have been shrinking rapidly, it skews the data.
- Median income numbers are weighed down by strong (legal and illegal) immigration. New immigrants entering at the bottom bring the median down. If one were to look at apples and apples, ie the same people without immigrants ten years ago and today, one would see strong median income growth. Just to drive the point home, if there have been 10 million new immigrants at the poor end of the economy, then one needs to count up the list of incomes 10 million spaces to get the true apples-to-apples median income comparison.
- Individuals matter, not medians. Even with a stagnant median income, all individuals can and probably are doing better as incomes improve with age.
- A lot more here
- I feel like I am living in some weird new incarnation of Brave New World or Midas World where the government sets its highest purpose as promoting ever-higher consumer spending. The last such goal the government set for itself was increasing home ownership. And that worked out really well.
- This is back to the 70's time, something I have been predicting for a while. How is it that educated people can believe that protectionism + strong restrictions on the free movement of people + higher taxes + government tilt of the labor management bargaining power further towards the unions + creation of a massive new government bureaucracy = increased prosperity? I think of all the crap I catch from leftists that I am somehow anti-science and anti-reason for being a climate skeptic. But economics is a science too, and willful ignorance of that science is far more destructive than other instances of scientific ignorance to which they point.
- Isn't protectionism + strong unions + comprehensive 3rd party-paid health care + high government regulation exactly the approach the US auto industry has taken. How's that working out?
