Wage Stagnation and Increased Purchase Power

I consider myself an armchair economist so what I am about to say might be missing something but I will summarize what I understand to be two sides to an issue.

We know that wages or income have been largely stagnant for most Americans since the mid-1970s. That is, when we take the incomes of Americans 40 years ago and adjust it for inflation, there has not been any improvement. There are a number of things to account for in this statistic and while I can't go into the reasons here, I will say that generally I believe it is true; despite an increase in productivity and increases in GDP since 1975, the average worker is not bringing home more money today than 40 years ago. (I say 'he' because it appears that the glass ceiling notwithstanding, women's income has risen on average since then. But of course the gender pay gap is still quite common and unfairness in pay between the sexes has not been adequately dealt with.)

Allocation of Housing

Many people today see an unfair distribution of wealth and income more easily than ever before. According to most statistics, wealth has not been this polarized in the U.S. since 1929.

I don't know if the average American can suggest a reasonable remedy, though. Simple confiscation of wealth from the top 1% of income earners and redistributing it to the rest of us is just not going to be practical. Even if we taxed the highest incomes at 90%, the revenue from those increased tax receipts would not be divided equitably, we can assume.

I'm afraid that although people have a legitimate gripe in the disparities in wealth, we all have bought into this system of distribution at least in part. For example, almost none of us believe that there should be an absolute cap on income. That is, a law saying that all income above $XXX,000 will be confiscated by the government will not be popular when personal liberty is concerned.

One piece of evidence to support this buy-in to the current system of wealth distribution is housing. The U.S. (and any metropolitan area) has a large stock of housing--some of it desirable and some not very desirable. In the Washington, D.C. metro area, for example, there are beautiful homes along the Potomac river in Great Falls, Virginia, Georgetown in Washington or in the neighborhood called Potomac in Montgomery County, Maryland. These homes often cost upwards of several million dollars.

By contrast there are homes in poorer sections of the metro area which sell for less than $100,000. Some might be in a neighborhood with a lot of foreclosures or boarded up properties, or an area with poor schools, crime and litter.

In any case, almost all of us realize that the good, the average and the poor quality housing stock is distributed among the population according to certain circumstances--namely income. If you can afford it, you can buy a house in Georgetown. If not, you have to look elsewhere. Few of us dispute that--if we want to live in a million dollar home, we need to have a lot of money.

Utopians (and perhaps Communist hangers-on) might argue that this limited commodity (housing) should be shared equally among us and that perhaps residences should rotate among people, giving all of us a chance to live in Potomac or Great Falls while others are sent to public housing or blighted neighborhoods.

But even the poorest among us believes that the only reasonable way to move to Potomac is if you are rich. It is foolish to expect anyone to voluntarily give up that home (as none of us would do if we were the occupants) in the interest of sharing with our community.

So in that narrow sense, despite rising anger at disparity in wealth these days, few of us dispute that the most desirable homes should be distributed (or re-distributed) by anything but the ability to pay.

Consumer Behavior and Psychology

I heard a segment on the news this morning which talked about (among other things) why and when humans give charitably. It is worth noting that we tend to tip better when the waiter gives us a piece of candy along with our bill in a restaurant. Also mentioned were the rates of charitable giving when we receive unsolicited gifts such as return address labels with our name and address printed on them, or a small gift from Hare-Krishna members in the airport.

It reminds me of things I've heard and read about certain marketing practices designed to get a person to spend more, for example product display tricks such as putting the same product in two or three different size containers and pricing them in such a way as to influence which size we purchase.

I would like to believe that this inside information and the details of marketing ploys would one day have  some monetary value to me but that's not necessarily true. Despite knowing how retailers and other corporations try to change my purchasing behavior:

• It is unlikely that I will take this information and profit from it by purchasing more wisely
• Knowing the tricks of marketing or philanthropic organizations does not necessarily mean that I will anticipate and counter these devices
• Nor do I harbor any idea that if I did outwit them, that I will get rich because of it

And most importantly, it goes without saying that even if I did save money--even a lot of it--this way, I wouldn't necessarily be any happier than I am right now.

The Effectiveness of Deficit or Stimulus Spending

Conventional wisdom holds that an industrialized nation facing an economic slide should spend government funds to get money into the hands of those who can spend it on goods and services. This in turn puts other workers back on the payroll and creates a virtuous cycle. This idea is attributed to John Maynard Keynes, although it was undoubtedly bandied about by earlier theorists (just as the idea of evolutionary biology was considered by scientists earlier than Charles Darwin).

Deficit spending worked well in the 1930s but it was actually wartime production (financed by deficit) that ended the Great Depression more than domestic works projects. But if the economic stimulus helped during that period, unfortunately the effectiveness of this kind of measure has been diluted in subsequent recessions. It was used in the early 1980s, the early 1990s and the early 2000s with dubious success. The United States pulled out of each of those recessions but the degree to which we can attribute the recovery to deficit spending is questionable. 

However having said that, I must admit that it is one of very few tools available to government to get us out of the current predicament. The others are so ludicrous that I mention them only to demonstrated the inevitability of the Keynesian approach: printing money and soaking the rich.

The former would only exchange one problem for another. The second is also a non-starter since the rich run our country. I should point out that president Obama advocates increasing taxes on the wealthy and although I agree with his position, the increased income for the Treasury wouldn’t come close to solving our fiscal deficit.

New Business Model

Much of my professional life over the past 5 years has been in studying the changes to the way that scholarly publishers do business and collect revenue. I don't have time to go into detail now, but will only say that it is inevitable that the service which academic journals provide will soon be paid for by a different group than has done so in the past. We call it a "new business model," and it basically means that author-scientists benefit more from these journals than reader-scientists and that therefore the costs will shift from library subscribers to manuscript submission or publication fees.

I can't help but think about a new business model that the American political establishment chooses to ignore. It goes like this: every American president, member of Congress and most other elected officials see one of their primary duties as the creation of jobs or at least of economic conditions that favor increased production and growth which would favor a greater number of employment opportunities. But what this ignores is that increased economic production and growth necessarily means greater consumption but nobody will say this out loud.

The reason is that consumption, although used as an economic term, has negative connotations. Consumerism is bad, we've learned in the past few decades both because it generally means an increase in consumption of natural resources or in a psycho-social degradation of the society we became so proud of in the mid-20th century. Producing more goods and services means that more of the earth will be plowed, mined, resurfaced or paved and that more automobiles, airplanes and ships will burn more fossil fuels and deposit more residue in our air and oceans ultimately affecting the ability of our earth to sustain us 7 billion.

But nobody wants to say that.

The old business model has our elected officials falling all over themselves to get a certain industry or corporation to move operations to the home jurisdiction. Some years ago the state of Maryland extended all sorts of perks and incentives to  the Marriott Corporation to convince them to keep their headquarters in Montgomery County rather than moving across the Potomac river to Fairfax, Virginia.

This kind of thing happens everywhere and although most of us citizens generally object to the notion of giving tax breaks or building roads and infrastructure purely for these mammoth corporations, we as workers generally like it when it happens specifically to us. We rail against corrupt politicians who will only vote on a sensible piece of legislation if it contains a provision for some government spending or economic development in his or her legislative district. But if we happen to live in that district--and we need a job--we tend to soften our opposition.

In order to reverse the degradation of our natural resources, we have not to prohibit certain consumer behaviors or undertake a concerted and long-term campaign of public service announcements trying to change behavior. Rather we need to price a livable earth with all its components (clean air and water or undisturbed forests, for example) so that any economic products that detract from those components have to bear the cost. Therefore the price of most everything would go up and we would consume less. Our earth would be more livable, but our personal "standards of living" (as defined narrowly in popular culture) would decline.

Such a new business model is inevitable if we want to avoid a biological catastrophe.

But nobody wants to say that.

Except maybe Al Gore.

Term of Endearment on the Basketball Court

You may want to refer to another post on basketball and race, which I wrote as a kind of introduction to these kinds of things.

Back in the 1980s, I was playing a lot of basketball and as always, I noticed a few language trends. One of them was the use of the familiar term, "cuz" by one player toward another. I assume it is a short form for "cousin" but that didn't mean the players had a common grandparent. It was for lack of a better description, a term of endearment. I suppose it could be compared to the 1970s use of the terms, brother or bro. It sounds corny today but people did talk that way back then.

One day I was playing at a particular playground and remember one particular player referred to almost everyone as cuz. He didn't seem to have any discretion or sense of over-usage of slang or maybe he had just learned the term himself earlier that week and couldn't get it out of his head. In any case, I was the only white guy there and waiting for the next game, which I had called. This cousin-of-everyone was in the current game and while I waited for next, I watched and listened out of curiosity to find out that he referred to every player (teammate and opponent) with that term. He offered direction to other players by saying things like, "I'm open, cuz," or "over here, cuz," or "this way, cuz," to everyone in the game.

My experience at that particular court had been that pickup games were normally played until 13 points so when one of the teams scored the 13th basket, I stepped on to claim next game. But they kept playing and the extended-family-guy pointed out to me that the local custom was that the first game to kick off the evening was usually played until 16 points. He said to me, "Game goess to 16, Chief." I wondered briefly why he didn't call me cuz, but it made sense. There was no way we shared any immediate relatives--at least as far as he was concerned.

Limits of Charity

Living in the city, I see quite a few homeless people spending days, weeks, months and even years on the street. As I walk to my office I pass several homeless men, many of whom have been on the same street corner for several years. But in my daily movement throughout my urban environment I also pass many others who I have never seen and will probably never see again.

Like many others, I feel guilty when I avert my eyes or shake my head and silently look at them asking me for a handout. In recent years I have felt more and more charitable but not towards these people. I leave large tips lately, not for excellent service but after I think for a few minutes about the life of the person serving me, their economic status and uncertainty and their obvious desire to have more in their life than the job they have serving me. I have also noticed myself giving more and more to strangers in other spheres as well. But unfortunately the homeless get very little from me.

Why? Well I have thought about it a good deal. If I were to stop and speak to the street beggar I might say that I can give him some money without suffering any perceptible hardship--I have a bank account full of money, after all. And not only can I give him a dime or quarter today, but I could probably give a dollar every day for the remainder of my working life and I wouldn't suffer for it.

But should I? And if I gave a dime or a dollar every day to one gentleman panhandler, which would it be? Why choose one over another?

This may be fuel for the argument that instead of individual, ad-hoc charity, we ought to all pool our money and give it to either the government or to a non-profit to be used in some form of assistance for the poor. Then we wouldn't have to make these decisions on how much, how often and to whom. And further, we can assume that non-profits at least know something about helping the poor get back on their feet and they would channel the money to its most favorable use, eliminating any danger of someone buying liquor or drugs with the coins he saves up.

I brought up this question one time with a man who asked me for money on the street one day. I don't remember exact details but I did say to him that I see half a dozen homeless men every day and that I could give them all my money if I wanted to, but should I? And if not, when? His answer was that I should give when I feel like it, when I feel charitable. I guess he was saying that charity is an emotional decision, not a rational one.