Second Rate Nation

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economy

Who’s number one? Not the U.S. apparently. David Francis writes in the Christian Science Monitor:

The United States is the world’s only military superpower and has the globe’s largest economy. Yet, by some measures, the US is a second-rate industrial nation – at best.

“Compared to other advanced economies, our market-driven model yields highly varied results regarding the living standards of our citizens,” notes a study by the Economic Policy Institute (EPI), a nonpartisan think tank in Washington.

It’s an open question as to whether most Americans are better off than most Western Europeans.

“We leave a lot of people behind,” says Sylvia Allegretto, an economist at EPI.

“We are a dynamic economy,” says Timothy Smeeding, an economist at Syracuse (N.Y.) University. “A lot of people are doing well,” he adds. But for those with median incomes ($40,000 a year) or less, it is a “second-rate” economy. They “are not getting much help.”

Conservatives like to brag about numbers — Gross Domestic Product (GDP) and Gross National Product (GNP) and Purchasing Power Parity (PPP) numbers, for example — and toss in some coefficients and price adjustments, and then they say, ah-HAH. The U.S. is the richest country in the world.

This guy is a prime example. After a dizzying display of numbers, he concludes:

If we accept (as I do) that we do, indeed, need to have a social safety net, and that we have a duty to provide for those incapable or unlucky enough to be unable to do so for themselves, we need to set some level at which such help is offered. The standard of living of the poor in a redistributionist paradise like Finland (or Sweden) seems a fair enough number to use and the USA provides exactly that. Good, the problem’s solved. We’ve provided — both through the structure of the economy and the various forms of taxation and benefits precisely what we should be — an acceptable baseline income for the poor. No further redistribution is necessary and we can carry on with the current tax rates and policies which seem, as this report shows, to be increasing US incomes faster than those in other countries and boosting productivity faster as well.

At the bottom of the article, the author’s blurb: Tim Worstall is a TCS Daily contributor living in Europe. (chuckle)

Compare/contrast with Robert Kuttner, who wrote in April 2006:

Census data show median household income fell 3.8 percent or $1,700, from 1999 to 2004, according to economist Jared Bernstein of the Economic Policy Institute (on whose board I serve.) And this drop occurred during a period when average productivity rose three percent per year.

Moreover, as economist Jeff Madrick has observed in his book ”Why Economies Grow,” , the reality is worse because prices of commodities that make us middle class are rising much faster than inflation generally: housing, college education, health care, and also child care. These very rapid price increases are offset by falling costs of consumer electronics, basic food, and clothing, creating misleadingly low inflation measures.

It’s great that shirts are cheaper than a decade ago, and that we all have cell phones. But that doesn’t exactly substitute for a house, an affordable college education, or health care.

According to economist Bernstein, whose study covers the years 1991-2002, households in the middle fifth of the economy increased their incomes (not adjusted for inflation) by 41 percent. Inflation during that period, as measured by the government’s Consumer Price Index, went up 33 percent. That implies real living standards rose by a not very impressive 8 percent during more than a decade.

But hold on. During the same period, housing, healthcare, education, and child care went up 46 percent, or more than incomes. We cannot afford the big things we need and comfort ourselves with gadgets. The cheaper laptop, plasma TV, and GPS screen in your car make it appear statistically that living standards are not falling as much as they are.

The emblem of the new economy might be a 35-year-old, listening to an iPod, living in a house much smaller than the one he grew up in.

To use a favorite word of my grandmother’s, call it the Tchotchke Economy (a Tchotchke is a small trinket): Plenty of nifty, ever cheaper electronic stuff — and ever more costly housing, education, healthcare. An iPod is swell, but it doesn’t exactly make you middle class.

Why does this describe America in 2006? Don’t blame it on immigrants. Blame it on the people running the government, who have made sure that the lion’s share of the productivity gains go to the richest 1 percent of Americans. With different tax, labor, health, and housing policies, native-born workers and immigrants alike could get a fairer share of our productive economy — and still have the nifty iPods.

Righties pooh-pooh standard of living comparisons as so much socialist hocus-pocus; they prefer numbers. But I would really love to see a side-by-side comparison of how average working people live in several industrialized nations. Take some common occupations, both white and blue collar — e.g., truck driver, cashier, teacher, office administrator — and compare how people in those occupations manage in various countries. Take into account what kind of house they live in; how much of their income goes to pay for housing (mortgage, rent, property taxes); what major appliances they own; how they get around on an ordinary day (car, bus, bicycle) and how much time they spend commuting; how many hours a week they spend on the job; vacation and leisure (how much paid vacation they get, and what they do for fun); the quality of health care they receive and how it’s paid for; how much they spend on child care and education; etc.

Take your numbers and shove ’em, in other words. Show me how ordinary working folks live. I suspect the U.S. would look pretty average in such a comparison — better in some ways, worse in others.

Of course, in the United States there are huge disparities from region to region. Housing is a lot more affordable in most of the South and Midwest than it is in the megalopolis northeast, for example. It might take some doing to figure out what the real “average” is in the U.S.

See also this article from the August 19 Guardian: “Balance of power ebbs away from the US.

… the US economy has already slowed, expanding at an annual pace of only 2.5% in the second quarter. With news this week that the 12-member eurozone expanded at an annualised rate of 3.6% in the April to June period, Europe is suddenly growing faster than the US. Britain, too, has recovered from last year’s slowdown and expanded at an annualised 3.2% in the second quarter.

In the last post I wrote about how the nation’s infrastructure is rotting away. This is not from a lack of wealth; certainly we got wealth up the wazoo in America. No, our infrastructure is rotting away because of a lack of will, as well as greed. A small portion of our citizens are sitting on most of the wealth and don’t want to share it. And the politicians are too corrupt or clueless to insist that infrastructure be maintained. Eventually we’ll have more and more power failures and maybe some spectacular and deadly bridge collapses, and then citizens will want to know why.

Face it; the whole nation is being Katrina’ed. The only difference between the Gulf Coast and the rest of us is time. Hurricanes work fast; rot and rust take longer. But they get the job done eventually.

Update:
Via DemFromCT at The Next Hurrah, Steven Greenhouse and David Leonhardt write in today’s New York Times, “Real Wages Fail to Match a Rise in Productivity“:

With the economy beginning to slow, the current expansion has a chance to become the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers.

That situation is adding to fears among Republicans that the economy will hurt vulnerable incumbents in this year’s midterm elections even though overall growth has been healthy for much of the last five years.

The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity — the amount that an average worker produces in an hour and the basic wellspring of a nation’s living standards — has risen steadily over the same period.

As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability.”

Here’s an eye opener:

In another recent report on the boom in profits, economists at Goldman Sachs wrote, “The most important contributor to higher profit margins over the past five years has been a decline in labor’s share of national income.” Low interest rates and the moderate cost of capital goods, like computers, have also played a role, though economists note that an economic slowdown could hurt profits in coming months.

Is that saying that corporations are making profits by squeezing workers? I do believe that’s what it says.

The most recent recession ended in late 2001. Hourly wages continued to rise in 2002 and peaked in early 2003, largely on the lingering strength of the 1990’s boom.

Average family income, adjusted for inflation, has continued to advance at a good clip, a fact Mr. Bush has cited when speaking about the economy. But these gains are a result mainly of increases at the top of the income spectrum that pull up the overall numbers. Even for workers at the 90th percentile of earners — making about $80,000 a year — inflation has outpaced their pay increases over the last three years, according to the Labor Department.

I’d like to know what Tim Worstall, TCS Daily contributor living in Europe, has to say about that.

Update: Maxspeak, who understands numbers better than I do, explains why Tim Worstall (TCS Daily contributor living in Europe) is wrong.

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20 Comments

19 Comments

  1. Uncle Bubba  •  Aug 28, 2006 @12:42 pm

    “the reality is worse because prices of commodities that make us middle class are rising much faster than inflation generally: housing, college education, health care, and also child care. These very rapid price increases are offset by falling costs of consumer electronics, basic food, and clothing, creating misleadingly low inflation measures.”
    Unfortunately, the “commodities that make us middle class” are also the commodities of the upper class. I would also include the ownership of stocks and bonds, upper corporate saleries, and real estate in general in any list of upper class commodities.
    The supply-side theory of economic distribution is dependent on the idea that the rich are different from you and me. If you give more of the economic pie to the wealthy, they will have more to spend on more things, rather than the cost of the things they already buy inflating to absorb the addition monies.
    Since the 1980’s the cost of upper class commodities has been in a steep inflationary spiral, while the cost of lower and middle class commodities has effectively stagnated.
    Because the middle and lower classes make up the vast majority of Americans, the overall inflation rate has been low. Even though the rich can afford to pay much more for a single loaf of bread, most people can’t, and the cost of bread stays roughly the same. The cost of any commodity that is puchased exclusively by those with excess cash will naturally rise to take as much of that excess as the market will allow. The competition for ownership between excess owners assures that market will allow more and more every day.

  2. renate  •  Aug 28, 2006 @12:56 pm

    Either Worstall does not know the US or Europe or both.
    Europe wins hands down, quality of life for the average citizen is visibly better in Europe. Being poor in Europe does not come close to be poor in the US. Housing, health care, food and transportation are better for poor people. There are no run down trailer parks or shacks, or people living in places between abandoned buildings as you can see in the US.

    One does not need statistics to know, one can see it and feel it.

    I have never seen the kind of poverty in Europe as I have seen here.

    .

  3. maha  •  Aug 28, 2006 @12:57 pm

    Uncle Bubba: The “supply-side theory of economic distribution” is an oxymoron, because it doesn’t distribute. “Supply side” helps the rich get richer, the poor get poorer, and puts government budgets in the red. That’s the reality of it. You can wave hifalutin’ verbiage around all you like; it don’t change nothin’.

  4. renate  •  Aug 28, 2006 @1:09 pm

    Homeownership is not mentioned, but often reported as more than 60%, but that is deceiving too, the banks own the homes and the so called owners pay the banks, the real landlords, and have all the responsibility of the owners, including the risks.

  5. Tom Hilton  •  Aug 28, 2006 @1:43 pm

    Unfortunately, in recent years the idea has gained currency that the people who have the most deserve more (because the reason they have the most is that they’re the smartest/most talented/most resourceful) while the people who have the least deserve less (because if they had any brains/talent/resourcefulness they wouldn’t be working for minimum wage). And when I say ‘gained currency’, I’m not talking about it being the operational philosophy of the administration; I mean a lot of pretty average people actually believe it. Most (or, if not most, a large and dominant minority of) Americans don’t see a problem with growing inequality per se. Of course, even if they don’t care at all about the fortunes of 99% of the population, they should still give some weight to the adverse side effects of growing inequality–of which America becoming a second-class economic power is one.

  6. A Canadian Reader  •  Aug 28, 2006 @2:37 pm

    “Real Wages Fail to Match a Rise in Productivity”–The NY Times.
    http://www.nytimes.com/2006/08/28/business/28wages.html?ex=1156910400&en=0d0f343a883345fc&ei=5087

    Doesn’t that just say it all?

  7. felicity smith  •  Aug 28, 2006 @5:16 pm

    Be careful of numbers. There’s that old brain teaser – make Bill Gates the 21st resident in a homeless shelter and then take the average income of the 21. That aside, America is 35th world-wide in the quality of health care available to the average one of us, not to mention that needing it big time will probably bankrupt you. A so-called first world country like this one that denies its citizens a basic human need like health care is first world in name only.

  8. Uncle Bubba  •  Aug 28, 2006 @6:18 pm

    Maha: You are, of course, right. Supply-side economic models distribute, but life is not a model. I was addressing one of the several reasons why it failed. A foreseeable reason. Part of the pitch to sell supply-side was that rich people are wise and will spend money in productive ways, while the rest of us would just waste it on frivolities.
    Despite the fact that even spending money on the frivolous increases productivity, that the rich are every bit as inclined toward wastefulness as their less worthy countrymen, and a large chunk of the monies syphoned from the lower and middle classes and deposited in the laps of the wealthy has been gobbled up by high ticket price inflation, the majority of our supposed representatives in Congress are supply-siders (and not incidently wealthy).
    A patently failed economic model is America’s default tool for economic decision making.

  9. Right Reading  •  Aug 28, 2006 @10:09 pm

    Clearly supply side economics is not understood by anyone here. To infer that we are as Americans living a substandard lifestyle (can you imagine lamenting the poor life on a liberal political blog?). Let’s be clear, the boom from the 90’s had nothing to do with Billy Boy. Economic policies take a decade to flow through the system, yes you can create stimulis like a tax cut that can can have a quick effect, 1-3 years. But real policies work over a longer period of time. In this decade we are reaping the benefit of the economic policies of the 90’s, just like the 90’s rode the coat tail’s of Ronald Reagans policies in the 80’s. As a suggestion try reading a paper like Invester’s Business Daily for real information concerning things money and use the editorialized slanted perspective of the Times for the bottom of your bird cage where it belongs.

  10. maha  •  Aug 28, 2006 @10:56 pm

    Clearly supply side economics is not understood by anyone here.

    Oh, we understand it fine. We just don’t believe it.

    To infer that we are as Americans living a substandard lifestyle

    That is not what I wrote. I’m talking about the standard of living of working-class Americans, people who make median or below income, compared to people working the same jobs in other industrialized nations. And I said in comparison Americans probably were fairly average. Not substandard; average.

    If you are upper middle class or above in America, you probably live much better than most of your counterparts abroad.

    Conclusion: Supply siders can’t read.

    Let’s be clear, the boom from the 90’s had nothing to do with Billy Boy. Economic policies take a decade to flow through the system,

    That means Jimmy Carter should get credit for the Reagan “boom”! Who’d a thunk it?

    yes you can create stimulis like a tax cut that can can have a quick effect, 1-3 years. But real policies work over a longer period of time. In this decade we are reaping the benefit of the economic policies of the 90’s, just like the 90’s rode the coat tail’s of Ronald Reagans policies in the 80’s. As a suggestion try reading a paper like Invester’s Business Daily

    Holy shit; Investor’s Business Daily is the most imbecilic piece of crap on the planet. I’ve seen it; it’s jaw dropping. Absolute trash. You’d get better advice from supermarket tabloids with space aliens on the cover.

    However, consider your substandard reading comprehension skills, I’m not surprised you read IBD.

    In fact, the boom of the late ’90s was in large part due to Clinton’s budget deficit reduction. The dot com boom also contributed.

    use the editorialized slanted perspective of the Times for the bottom of your bird cage where it belongs.

    The article linked at the top of the post is from the Christian Science Monitor.

  11. Tim Worstall  •  Aug 29, 2006 @3:29 am

    There’s no poverty in Europe like there is in the US? Good grief! Have you ever actually travelled around Europe? Gone into the slums?

    Anyway, Maha asks me for my reaction to the news that wages have not kept up with productivity growth in the US in recent years. Fortunately, here’s something I prepared earlier:
    http://www.tcsdaily.com/article.aspx?id=071306A
    Precisely because productivity has been rising as fast or faster than GDP.

  12. maha  •  Aug 29, 2006 @7:01 am

    Mr. Worstall, um, I don’t mean to be rude, but your “explanation” makes no sense and seems to me nothing but a desperate attempt to hide real problems under a lot of verbiage.

    For more plausible reasons wages aren’t keeping up with productivity, see this article via Brad DeLong.

    I’m aggravated that BOP News remains offline (Stirling Newberry told me they were having technical problems) because several of the guys there have done some great blogging on this topic.

    There’s no poverty in Europe like there is in the US? Good grief! Have you ever actually travelled around Europe? Gone into the slums?

    I think the point that you can’t always judge quality of life by outward appearances is valid. For example, our abysmal infant mortality rates (particularly for the poor and black) compared to the poor of Europe is a strong indicator that our poor are worse off than their poor in at least some respects.

  13. Right Reading  •  Aug 29, 2006 @10:43 am

    Oh Maha……… of course it’s all about personal insult’s and twisting facts. Get a grip will ya, remember the Contract With America? Oh yes I’m sure you’ll call it the contract on America or some such but FACT is Billy Boy was constrained by the 1994 takeover of the house by republicans who enacted sound fiscal policy curbing the growth of spending.

    And NO it certainly wasn’t Carter’s policies that gave us the growth in the 80’s, that was tax cut’s and military spending!

  14. maha  •  Aug 29, 2006 @11:28 am

    Billy Boy was constrained by the 1994 takeover of the house by republicans who enacted sound fiscal policy curbing the growth of spending.

    Responsible tax increases made a big difference, too. BTW, how is it that Republicans don’t do sound fiscal policy any more?

    And NO it certainly wasn’t Carter’s policies that gave us the growth in the 80’s, that was tax cut’s and military spending!

    But you said it took ten years or so for fiscal policies to have an effect. I guess you lied the first time, huh?

  15. Right Reading  •  Aug 29, 2006 @12:53 pm

    Ahh now I’m a liar, does taking snippets to suit your message make you a liar maha? I DID say it took a decade for policies to work through the system AND I also said that tax cuts can have a much more immediate effect. You left that part out just so you could call me a liar. Your bitterness betrays you, before you cut and paste snippets you should edit out all the words in the postings you don’t agree with so you can “appear” much more credible.

    As far as the point about “responsible” tax increases, yes there were tax increases. Were they responsible? Do you know what they were to define them as responsible? I know for me, my taxes went up, and I am and was by no means rich, wealthy or even close to middle class at the time. I do know I had less to support my family with though, my solution was to get a better job. To increase my skill set and my value in the market place. Something that IS available to everyone in America.

    BTW I’ve been to Europe, sure there are some nice places to visit but there really is no place like America. Universal healthcare? a fallacy, look north for the reality of it. Waiting lines, poor quality, lack of doctors. Cheap meds? Can we talk about intellectual property being stolen and then being profited from by foreign governments? Yes clearly we as Americans subsidize the universal healthcare to the north.

    OK maha go ahead pick and choose what words you want to pick apart, make sure you define the context and not what I actually wrote. It’s a lazy way to do it, in my humble opinion, but if that’s the best you can muster, knock yourself out.

  16. maha  •  Aug 29, 2006 @2:38 pm

    Were they responsible?

    Yes, just as Bush’s tax cuts are irresponsible. They aren’t really tax cuts; they’re tax deferments. All debts have to be paid eventually.

    The conservative fallacy is that you can get everything you want and not have to pay for it. Sorry; the real world doesn’t work that way.

    Universal healthcare? a fallacy, look north for the reality of it.

    Gawd, you people are predictable. I’ve blogged about you righties and the Canada bugaboo many times before, like here and here

    Along with proving that none of you thinks for himself, the Canada bugaboo ignores the fact that the U.S. is the only industrialized democracy left in the world with no provision for universal healthcare.

    Click on the second “here” above to find out who knows how to do health care right. (Hint: Neither Canada nor Britain.) Also see this report to learn why the U.S. does not have the best health care system in the world; just the most expensive.

    Cheap meds? Can we talk about intellectual property being stolen and then being profited from by foreign governments?

    Don’t worry your head about that, son. Thanks to the Republican War on Science the good researchers are all going elsewhere. We’ll be stealing their patents one of these days.

    if that’s the best you can muster, knock yourself out.

    I’m not actually debating you, dear. I’m just playing with you. You aren’t capable of serious debate at my level.

    And although I find you mildly amusing, I have other ways to waste time. So — goodbye.

  17. Right Reading  •  Aug 29, 2006 @4:45 pm

    oh maha, did I tweak you too much? In one retort you called me dear and son, how charming. I also find you amusing but not very playful and very light on facts.

    I’m not a troll and very seldom post anywhere and at the moment can’t recall what link brought me here, well actually to your old site. It might have been the forged (fact) Bush documents from the ’04 election. I happen to be one of those that likes to delve into the murky waters of liberal defeatism, I mean how “you folks” think just to help gain perspective.

    Perspective…

    Do you remember what it was like to be an American in 1979 and ’80? To feel helpless while an incompetant wrung his hands in the oval office while 66 Americans were held hostage in front of the world and the most powerful nation in history was humiliated and shamed? I do. I turned 19 that year. Gas lines and humiliation, is it any wonder that Reagan got 489 electoral votes? Can you guess who I voted for in my first presidential election?

    What was instilled in me then has stayed with me and I will agree with you on at least one point. As I sit at my oak desk, at my corporate office, surrounded by the business that I built with my own hands, determination, will power and intellect…….. I have no inclination nor desire to stoop to your level and debate you on your terms.

    But hey you seem pretty smart maybe when you grow up and become a conservative we can have drinks and a good chat!!!

  18. maha  •  Aug 29, 2006 @5:05 pm

    Do you remember what it was like to be an American in 1979 and ‘80?

    I remember what it was like to be an American in 1959 and ’60, 1969 and ’70, and 1979 and ’80. Of those three, the last was least alarming, by far. Easily. No contest. The Carter years were downright placid compared to the 1950s and 1960s.

    My memory doesn’t quite go back to 1949 and ’50, although I do remember watching Elvis on the Ed Sullivan show. But I’ve read about it; nasty times. Korea and spy scandals and all that.

    I turned 19 that year.

    And you’ve had a privileged and sheltered life, I see.

    As I sit at my oak desk, at my corporate office, surrounded by the business that I built with my own hands, determination, will power and intellect

    In my experience what it takes to succeed in business is self-confidence and an aggressive personality. Smarts, not so much. I’ve known a lot of really stupid but successful executives.

    maybe when you grow up and become a conservative we can have drinks and a good chat!!!

    They’ll have carted me off to the old folks’ home before you grow up, but you can visit if you bring some hooch.

  19. Gordon  •  Aug 30, 2006 @11:59 am

    Wow. Right Reading has a major denial problem.

    Reagan actually raised taxes. He gave the rich a cut early on, then more than made up for it by instituting a huge and regressive increase using the Republican bugaboo of Social Security. Oh, that’s right, according to the Republicans, those aren’t “taxes”.

    Reagan, through lack of planning and policy (dangerously socialist activities, those) presided over the end of Industry and the “financialization” of the US economy (why actually make anything when, because we’re sitting on this huge pile of dough, we can yank everybody around, just like on Dallas or Dynasty!).

    According to Kevin Phillips, that marks the beginning of the end of the American economic empire (Wealth and Democracy). When economic advantage begins to erode (as say, when China has to prop up your economy), those in denial predictably resort to military misadventures.

    Clinton’s fostering of hi-tech was a failed but intelligent attempt to stave off the collapse.

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