Kruse Kronicle

Economics Links

1. Huffington Post: Financially Speaking -- Are We an Illiterate Nation?

... Champlain College's Center for Financial Literacy released its '2013 National Report Card,' which quantifies what states are doing to promote financial literacy in the classroom. Only seven of 50 states surveyed came away from the study with an "A" rating. That's right, a paltry seven states! Of these seven states, only four have a standalone course -- Utah, Tennessee, Missouri and Louisiana.

Thirteen states received a "B" rating, and the remaining 30 states received a "C," "D," or "F" rating. In fact, eight states received an "F" rating. Ask yourself, as a parent, would you be content to have your children bring home similar grades? ...

2. Huffington Post: 40 Financial Things You Should Know by 40

3. Carpe Diem: World market cap reached record high in March, and is $2.4T above pre-recession, pre-crisis level

4. Businessweek: Why Factory Jobs Are Shrinking Everywhere

... But the U.S. jobs slide began well before China’s rise as a manufacturing power. And manufacturing employment is falling almost everywhere, including in China. The phenomenon is driven by technology, and there’s reason to think developing countries are going to follow a different path to wealth than the U.S. did—one that involves a lot more jobs in the services sector.

Pretty much every economy around the world has a low or declining share of manufacturing jobs. According to OECD data, the U.K. and Australia have seen their share of manufacturing drop by around two-thirds since 1971. Germany’s share halved, and manufacturing’s contribution to gross domestic product there fell from 30 percent in 1980 to 22 percent today. In South Korea, a late industrializer and exemplar of miracle growth, the manufacturing share of employment rose from 13 percent in 1970 to 28 percent in 1991; it’s fallen to 17 percent today. ...

5. Forbes: High Tech And Robots Can Create More Low Skilled Jobs, Not Just Destroy Them

As we all wait anxiously for the robots to come and steal all our jobs an interesting finding in a study on the effect of ever higher technology on the demand for low skilled labour. Contrary to what everyone seems to be assuming it is possible for that higher tech to actually increase the demand for that low skilled labour. For the higher tech enables that lower skilled labour to perform tasks that could only previously be done by highly skilled labour. And as the costs associated with whatever the task is fall then we quite naturally demand more of that task to be done. Thus, in certain cases at least, higher tech increases the number of jobs, not reduces them. ...

6. Business Insider: Why Food Prices Are Surging

... In a new report, Morgan Stanley commodities analysts led by Adam Longson attribute the surge in prices to a number of factors, "from weather (in the case of sugar, soybeans and coffee) to disease (in the case of hogs) to geopolitics (wheat and corn)."

The Morgan Stanley analysts don't believe this will continue. ...

7. Atlantic: How You, I, and Everyone Got the Top 1 Percent All Wrong

8. House of Debt: Measuring Wealth Inequality

9. Conversable Economist: An Inequality Chartbook: Long-Run Patterns in 25 Countries

This is an interesting chart from chartbook of income inequality.

10. Brookings: Income Growth and Income Inequality: The Facts May Surprise You

... The broadest and most accurate measures of household income are published by the CBO. CBO’s newest estimates confirm the long-term trend toward greater inequality, driven mainly by turbo-charged gains in market income at the very top of the distribution. The market incomes of the top 1% are extraordinarily cyclical, however. They soar in economic expansions and plunge in recessions. Income changes since 2007 fit this pattern. What many observers miss, however, is the success of the nation’s tax and transfer systems in protecting low- and middle-income Americans against the full effects of a depressed economy. As a result of these programs, the spendable incomes of poor and middle class families have been better insulated against recession-driven losses than the incomes of Americans in the top 1%. As the CBO statistics demonstrate, incomes in the middle and at the bottom of the distribution have fared better since 2000 than incomes at the very top.

11. Wall Street Journal: Ignoring an Inequality Culprit: Single-Parent Families

Intellectuals fretting about income disparity are oddly silent regarding the decline of the two-parent family. ...

12. Mother Jones: What If Everything You Knew About Poverty Was Wrong?

... A sociologist at Johns Hopkins University, Edin is one of the nation's preeminent poverty researchers. She has spent much of the past several decades studying some of the country's most dangerous, impoverished neighborhoods. But unlike academics who draw conclusions about poverty from the ivory tower, Edin has gotten up close and personal with the people she studies—and in the process has shattered many myths about the poor, rocking sociology and public-policy circles. ...

13. Forbes: Thank Goodness We Have Walmart If American Shoppers Are This Poor

... The economic background is that sure, WalMart makes good profits out of what it does. Yes, this includes minimising costs such as the wages they pay out, what they’ll let suppliers charge them. It even includes desiring to put other less efficient retailers out of business, those Mon and Pop stores, and to make those that remain more efficient through that competition with them. But there’s another effect of course: consumers save money through those lower prices.

We call this saving the consumer surplus. It’s not something that ever appears in the normal economic statistics, one good reason being that it’s rather hard to calculate. ...

... A 25% reduction in food expenditures just from the existence of WalMart is an amazingly large sum. It’s also considerably larger than the profits that WalMart makes out of its actions. And that’s from a decade ago recall (the paper is from 2005, the data up to 2003) and it is only recording the consumer surplus from WalMart’s move into food retailing, leaving the impact of the other parts of the company aside. ...

14. Atlantic: How the Rich and Poor Spend Money Today—and 30 Years Ago

15. AEI - James Pethokoukis: No, Walmart isn’t ripping off taxpayers

... I think I’m supposed to be outraged that Walmart isn’t paying some employees enough that they don’t need government anti-poverty benefits. But businesses generally aren’t going to pay workers more than they are worth. If a worker can only generate $8 in value to a company, then the firm isn’t going to pay them $10. Nor should they for some humanitarian reason. If American society thinks some of their fellow Americans deserve higher living standards than their skill set currently warrants, then society should pitch in and subsidize their wages through the Earned Income Tax Credit or even a new, broader direct wage subsidy. ...

16. PBS: How nonprofit workers get squeezed when minimum wages increase

Not everyone who supports raising the minimum wage is in a position to pay their employees more. Nowhere is that more true than in the nonprofit sector. ...

17. NPR: Subminimum Wages For The Disabled: Godsend Or Exploitation?

... Executive Director Gus van den Brink says the Sertoma Centre and other agencies do work to find jobs for disabled people in the community, but the focus should not be on shutting down all sheltered workshops. He says it would be nearly impossible for some people with severe intellectual disabilities to get a job at all. It's sheltered workshops, he says, that give them a chance to work and earn a paycheck.

"Some of the individuals may not even completely understand what the value of that paycheck is," van den Brink says. "But they know they are receiving a paycheck, so they are getting a lot of self-esteem. They are very proud of it."

Even so, Assistant Attorney General Samuels says the Justice Department will work with other states to make sure some workers with disabilities have the opportunity to do their work, as she puts it, at "real jobs for real wages."

18. PBS: What’s the welfare initiative uniting liberals and conservatives?

Some conservatives and liberals are uniting around the idea of a basic income because the current welfare system, they say, is an ineffective bureaucracy that doesn’t respect poor people’s ability to make their own decisions. ...

19. Atlantic: Women's Wages Are Rising: Why Are So Many Families Getting Poorer?

Start by looking at what's happening with men's wages. ...

20. Huffington Post: Gender Inequality in the Labor Market: Don't Call It a Wage Gap

When President Obama announced the Paycheck Fairness Act on Equal Pay Day this week, we applauded his efforts to address the so-called "gender wage gap" but, from a data point of view, mourn the fact that he, like many others before him, is building his case around a flawed number. The oft-quoted statistic that women only earn 77 cents for each dollar earned by a man, is not actually very accurate and distracts legislators and the public at large from coming up with solutions to the real problem -- the gender jobs gap. ...

21. Fortune: Corporate America's foreign cash machine: Signs it may be slowing

As governments coordinate to fix international tax laws on overseas earnings, companies may have to pay more taxes. ...

22. Forbes: How The Wealthiest Families Make And Lose Their Money -- Part 5

... Well-accepted research shows that about one-third of companies in the United States make it to the second generation.  Only around 10% reach the third generation.  If wealth were preserved during this movement away from the privately held business into the publicly traded markets, we would expect to see a greater portion of overall wealth being inherited.  But, the numbers tell us that only about 5% of wealth in the U.S. is inherited.  On the other hand, the wealthiest families of Europe hold two-thirds of their wealth in private companies and only one-third in publicly traded securities.  When we then look at inherited wealth, approximately 85% of European wealth is in its third or older generation.  One-third of European wealth is in its fifth or older generation.  This is an astounding result. ...

Economics Links

1. AEI - James Pethokoukis: What MinuteClinics and Google Fiber teach about crony capitalism

... Andy Kessler explains how established Internet service providers are trying to block Google from deploying Google Fiber, its superfast, gigabit broadband service. His solution: “The FCC can change this overnight. Instead of allowing municipalities to dictate onerous terms and laws that lock in (slow) incumbents, the FCC can mandate right-of-way rules similar to those granted Google Fiber to all credible competitors. If only the federal regulator would promote progress and focus on what’s best for the U.S. economy rather than for those it regulates.” Regulation should promote innovation and competitive churn, not protect revenue streams of existing players.

There is a big difference between being pro-business and pro-market. One does the bidding of incumbents, with the result being a static economy. The other promotes competition. Safety nets are for people, not businesses. The result is innovation and dynamism. Right now, America has too much of the former, not enough of the latter.

2. Economist: The politics of poverty. Another two cents.

... Within this miscellany [of the Ryan budget] there are some clues as to the future direction of Republican anti-poverty policies. Mr Ryan recently gave a speech in which he praised Britain’s Universal Credit, a plan to roll lots of government anti-poverty programmes into one. In some ways Britain is a strange place to seek inspiration: the British scheme is hopelessly behind schedule, a victim of the kind of IT snafu that has hobbled the Affordable Care Act. But the thinking behind it is sensible.

The other initiative that looks to have Mr Ryan’s blessing is the expansion of the Earned-Income Tax Credit (EITC) to people who do not have children (at the moment the childless are eligible for this credit but there is a low cap on the maximum payment they may receive). Marco Rubio has already spoken in favour of this. The report from the House budget committee cites plenty of evidence on the power of EITCs to boost the number of people in work. The president’s budget, published on March 4th, includes an expansion of this programme too. ...

3. Bloomberg: Free-Market Bashers Aren't Helping the Poor

... There's a more basic flaw in the thesis that markets have done nothing to help the poor while government programs have done a lot: Where does the government get the money to fund these programs? Economic growth is what enables Social Security checks to get fatter over time. Unless you're prepared to argue that the government is responsible for 100 percent of economic growth and markets for none, markets have to get some of the credit for whatever good government does. ...

... Both markets and government are necessary to improve the lot of the poor, and we ought to reform government programs so that they do a better job of helping the poor participate in markets. That's just common sense, and no study or statistic has given us a good reason to reject it.

4. AEI - James Pethokoukis: Has America finally reached peak food-stamp enrollment?

5. Carpe Diem: US household net worth increased to a new record high of $80.6T in Q4, fueled by stock market and housing gains

6. Bloomberg: Decoupling Happened: U.S. Stocks Soared, China's Shrugged

The idea that emerging markets could keep growing smartly despite the collapse of the U.S. was something romanced quite a bit in recent years. Decoupling, as it’s called, was at least numerically possible. After all, China, Brazil, India, and Russia—the planet’s four biggest emerging economies, which chipped in two-fifths of global economic growth in the year leading up to Wall Street’s 2008 collapse—stood out as the least dependent on exports to America. Upwards of 95 percent of China’s double-digit growth was attributable to domestic demand.

Turns out a decoupling did transpire in the five years since peak meltdown—only it’s the U.S. market that seems to be doing fine while China founders. It’s a divergence of fortunes few would have predicted. ...

7. Slate: The “Made in China” Fallacy

... But are iPhones really “made in China”? More than a dozen companies from at least five countries supply parts for them. Infineon Technologies, in Germany, makes the wireless chip; Toshiba, in Japan, manufactures the touch screen; Broadcom, in the U.S., makes the Bluetooth chips that let the devices connect to wireless headsets or keyboards.

Analysts differ over how much of the final price of an iPhone or an iPad should be assigned to which country, but no one disputes that the largest slice should go not to China but to the U.S., where the design and marketing of such devices take place at Apple’s headquarters in Cupertino, Calif. The largest source of an iPhone’s value—and this goes for thousands of other high-tech products—lies not in its physical hardware but in its invention and the work of the individuals who conceived, designed, patented, packaged, and branded the device.

Taking these facts into account would leave China, the supposed country of origin, with a paltry piece of the pie. The Asian Development Bank estimates that as little as $10 of the value of every iPhone or iPad actually ends up in the Chinese economy.

Now magnify this across hundreds, even thousands of finished goods. Those Nike shoes that count as imports from China, all those flat-screen televisions, Android phones, clothing, furniture, Disney toys and figures. Almost all are the result of ideas generated in the U.S. (or Japan, or Germany, or Korea, and so on), with parts sourced globally and then assembled in China to be sold elsewhere. ...

8. Project Syndicate: The Poverty of Renewables

... Forcing everyone to buy more expensive, less reliable energy pushes up costs throughout the economy, leaving less for other public goods. The average of macroeconomic models indicates that the total cost of the EU’s climate policy will be €209 billion ($280 billion) per year from 2020 until the end of the century.

CommentsView/Create comment on this paragraphThe burden of these policies falls overwhelmingly on the world’s poor, because the rich can easily pay more for their energy. I am often taken aback by well-meaning and economically comfortable environmentalists who cavalierly suggest that gasoline prices should be doubled or electricity exclusively sourced from high-cost green sources. That may go over well in affluent Hunterdon County, New Jersey, where residents reportedly spend just 2% of their income on gasoline. But the poorest 30% of the US population spend almost 17% of their after-tax income on gasoline. ...

9. New York Times - Economix: Q. and A.: A Development Expert on Narrowing Inequality

Branko Milanovic has been studying income inequality around the world for a long time. ...

... Inequality calculated among all individuals in the world, as if they were part of one single nation, has been edging slightly downward over the past 10 to 15 years, mostly thanks to very high growth rates in China and India. These relatively poor giants (particularly India) have pulled quite a lot of people out of poverty and into something that can be called “the global middle class.”

That is the key factor behind the decline of global inequality: The distance between their incomes and the rather stagnant incomes of the middle class in rich countries has diminished. Yet global inequality is still extremely high by the standards of any single country. It is, for example, significantly higher than inequality in South Africa, which is the most unequal country in the world. ...

10. Prospect: “I started off as a libertarian economist, but I’ve come full circle”—Gregory Clark on social mobility

... If you look at England, for example, what we measure is whether you were at Oxford or Cambridge; how long you live, which is another good indicator of social status; occupational status; are you a member of parliament? Now one of the interesting findings here is that it doesn’t really matter which measure you use. For the families we’re looking at, all these things are actually highly correlated. The wealthy at any time are also the educated, members of parliament, those who live long. What the book shows is that there’s an underlying physics of social mobility which all of our political efforts seem to have no effect upon. And the startling conclusion is that we may never be able to change social mobility rates. ...

11. Business Insider: Every 25-Year-Old In America Should See This Chart

12. Business Insider: 13 Money Lies You Should Stop Telling Yourself By Age 40

... By the time you hit 40, rationalizing away your bad money management habits starts to have a serious impact on your financial future (not to mention age you).

Here are some of the top money lies that you should stop telling yourself by age 40: ...

13. Huffington Post: 5 Tools to Tackle Finances in Your Twenties

Your twenties are hard enough already: matriculating from college, finding your first "real" job, moving out on your own, learning how to pay bills for the first time and learning how to navigate adult relationships without the structure of college or free flow of alcohol. It is a scary and awkward time, no one disputes that -- but mastering your finances in your twenties will reduce your stress and increase your net worth in the long run. Below are 5 tools you need to tackle finances in your twenties. ...

Economics Links

1. Quartz: Globalization really means countries just trade with their neighbors

2. Business Insider: Europe's Share Of Global Profits Is At A 28-Year Low

3. USA Today: Europe widespread corruption 'breathtaking'

... Meanwhile, the report, which was the first published by the EU to detail people's perceptions of corruption in the union, also said that 76% of Europeans think corruption is widespread, with another 56% saying they thought the level of corruption in their country had increased over the past three years.

"I think the perception is almost as important as the reality of how much corruption there is because if people feel that the national or EU institution is corrupt, it clearly is an indication of a lack of confidence, a lack of trust and a lack of respect for those governing institutions," said Ben Tonra, a professor of European foreign, security and defence policy at University College Dublin. ...

4. National Review: Welfare, Here and Abroad

How bad have things become? The British newspaper the Telegraph recently looked at the growth in welfare spending in industrialized nations and found that such spending (including health-care and pension programs) had grown faster in the United States since 2000 than in any country in Europe except Ireland, Spain, and Portugal.

Of course, European welfare states were larger to begin with, but the Telegraph’s report is reflective of an important trend. While the Obama administration presses forward with efforts to combat “income inequality” by expanding the American welfare state, the European nations and other industrialized welfare states are moving in the other direction.

A few examples: ...

5. Economist: The parable of Argentina

There are lessons for many governments from one country’s 100 years of decline ...

... Why dwell on a single national tragedy? When people consider the worst that could happen to their country, they think of totalitarianism. Given communism’s failure, that fate no longer seems likely. If Indonesia were to boil over, its citizens would hardly turn to North Korea as a model; the governments in Madrid or Athens are not citing Lenin as the answer to their euro travails. The real danger is inadvertently becoming the Argentina of the 21st century. Slipping casually into steady decline would not be hard. Extremism is not a necessary ingredient, at least not much of it: weak institutions, nativist politicians, lazy dependence on a few assets and a persistent refusal to confront reality will do the trick. ...

 6. Matt Ridley: Few people know that global inequality is falling and so is poverty

...  None of this is meant to imply that people are wrong to resent inequality in income or wealth, or be bothered about the winner-take-all features of executive pay in recent decades. Indeed, my point is rather the reverse: to try to understand why it is that people mind so much today, when in many ways inequality is so much less acute, and absolute poverty so much less prevalent, than it was in, say, 1900 or 1950. Now that starvation and squalor are mostly avoidable, so what if somebody else has a yacht?

The short answer is that surely we always have and always will care more about relative than absolute differences. This is no surprise to evolutionary biologists. The reproductive rewards went not to the peacock with a good enough tail, but to the one with the best tail. A few thousand years ago, the bloke with one more cow than the other bloke got the girl, and it would have cut little ice to try to reassure the loser by pointing out that he had more cows than his grandfather, that they were better cows, or that he had more than enough cows to feed himself anyway. What mattered was that he had fewer cows.

7. Huffington Post: A Post-GDP World? How to Measure Real Progress in America

... GDP actually tends to rise with societal problems such as crime, pollution, household debt, commuting time, and family breakdown. As a short-term measure of economic output, it increases with the depreciation of machinery and the extraction of finite resources, while failing to reflect the long-term contributions of education and entrepreneurship.

In light of these shortcomings, we seek to answer an overarching question in a report to be released in spring 2014: How should the US government institute supplemental national accounts that better reflect the well-being of the nation? The question, like the broader push for GDP reform, stems from a central premise that new comprehensive indicators would lead to better-informed policymaking, and, in turn, genuine advances in the nation's prosperity. We do not presume to replace GDP, which still serves an important although limited purpose, but to supplement it with modern measures of progress. ...

8. Business Insider: Half Of US GDP Comes From The Orange Spots On This Map

9. Legatus Magazine: Business and the option for the poor

... What does living out the option for the poor mean in practice? We must engage in works of charity — those activities that often address specific dimensions of poverty in ways that no state program ever could. And this means giving of our time, energy, and human and monetary capital in ways that bring Christ’s light into some of the darkest places on earth.

Yet this does not mean that Catholics are required to give something to everything, or even that Catholics must give away everything they own. As Fr. James Schall, SJ, writes, “If we take all the existing world wealth and simply distribute it, what would happen? It would quickly disappear; all would be poor.” Put another way, living out the option for the poor may well involve those people with a talent for creating wealth doing precisely that.

The option for the poor, however, does not rule out any form of government assistance to those in need. Yet lifting people out of poverty — and not just material poverty but also moral and spiritual poverty — does not necessarily mean that the most effective action is to implement yet another welfare program. There is no reason to assume that the preferential option for the poor is somehow a preferential option for big government. Often, being an entrepreneur and starting a business which brings jobs, wages, and opportunities to places where they did not hitherto exist is a greater exercise of love for the poor (and usually far more economically effective) than another government welfare initiative. ...

10. New York Times: Can Marriage Cure Poverty?

... “It isn’t that having a lasting and successful marriage is a cure for living in poverty,” says Kristi Williams of Ohio State University. “Living in poverty is a barrier to having a lasting and successful marriage.” ...

... In an economy that offers so little promise to those at the bottom, family planning in the name of upward mobility doesn’t make much sense. “Engaging in family formation by accident rather than by design, you get a story of low-opportunity costs,” says Kathryn Edin, the poverty researcher at Johns Hopkins. “We’ve created the situation where pregnancy is not the worst thing that can happen to you. It can be seen as a path to redemption in an otherwise violent, unpredictable, hopeless world.”

Similar forces might also spur some young couples not to get married, even if they want to. Many poor women opt not to marry the poor men in their lives, for instance, to avoid bringing more economic chaos into their homes. And the poor women who do marry tend to have unstable marriages — often to ill effect. One study, for instance, found that single mothers who married and later divorced were worse off economically than those who did not marry at all. “These women revere marriage, they want to get married,” Williams says. “They aren’t making an irrational choice not to marry.” ...

11. Atlantic Cities: How Anti-Poverty Programs Marginalize Fathers

... U.S. government programs designed to help such families, however, haven't evolved with the population. Based on decades-old stereotypes that single mothers are raising children alone and single dads are "deadbeats," the majority of United States anti-poverty programs almost exclusively serve women and children, says Jacquelyn Boggess, co-director of the Center for Family Policy and Practice,* a Wisconsin-based think tank that focuses on supporting low-income parents. The welfare system, as a result, can become a muddled mess of rearranging rather than relieving poverty. Single, non-custodial fathers bear the brunt. But dads don’t suffer alone. Because the poor pull together to support one another, everyone absorbs the pinch. ...

12. Investors: Low-Wage Hours At New Low As ObamaCare Fines Loom

... It's impossible to know how much of the drop relates to ObamaCare, but there's good reason to suspect a strong connection. The workweek has been getting shorter in many of the same industries where anecdotes have piled up about employers cutting hours to evade the law's penalties. ...

13. Business Insider: Very Few American Workers Actually Make The Minimum Wage

... "We do not know the share of individuals (or wages) who are just above the minimum wage and whose wages might also rise with an increase, but we do know that it is likely still a small proportion," they write.

"The current minimum wage is well below the economy-wide average. Even for low-paying sectors like retail trade and leisure and hospitality — where the average hourly wage in 2013 was $13.50 and $16.60, respectively — the current minimum is a fair bit lower. These data also suggest a relatively small share of total wage income that would be directly impacted by any increase in the federal (or various state) minimums."

So while the minimum wage debate may be a hot-button political issue, it is somewhat irrelevant from an economic perspective.

14. The Atlantic: Liberals Need to Think Beyond the Minimum Wage

A new report from the Congressional Budget Office says a hike would help the working class, but less than many might hope.  ...

15. New York Times: Evaporating Unemployment

Before the recession, in December 2007, about 63 percent of American adults had jobs. Six years later, in December 2013, less than 59 percent of adults had jobs.

And a new analysis says that the recession has very little to do with it.

The study, by two economists at the Federal Reserve Bank of New York, asserts that workforce participation is in long-term decline. If the recession had never happened, or the economy had since returned to complete health, the authors estimate 59.3 percent of adults would have jobs, instead of 58.6 percent. ...

 

16. Business Insider: Why 12.7 Million Americans Dropped Out Of The Workforce

17. Conversable Economist: Halfway to Full Economic Recovery

... In short, although the prediction is that the U.S. economy is roughly halfway from the end of the recession to a full economic recovery, this is a case where the glass is actually half-full, rather than half-empty, because the heartier period of economic growth is coming. Here are a few of the details. ...

 18. Carpe Diem: When it comes to spending on food as share of total consumer expenditures, Americans have the most affordable food on the planet, and it’s gotten better over time.

19. Forbes: Charitable Giving Grew 4.9% In 2013 As Online Donations Picked Up

... Charitable giving revenue grew 4.9% in 2013, the largest gain since the 2008 recession. U.S. based organizations with annual fundraising over $10 million saw 5% growth. Those that receive $1 million to $10 million in gifts gained 3.8% and the smallest nonprofits – less than $1 million raised annually – grew 3.6%. ...

... The tables, however, turn with online giving revenue which, at 13.5% growth overall, had its second consecutive year of double-digit gains. ...

 20. NPR: Economist Says Best Climate Fix A Tough Sell, But Worth It

... "When we did our first calculations, they actually spun out these 'shadow prices,' " he says. "And I remember looking at them and trying to think ... what in the world does that mean?"

The shadow prices, he realized, actually represented the cost of putting carbon dioxide into the atmosphere. And with that, climate change suddenly became a problem that could be attacked with the tools of economics.

"Actually from an economic point of view, it's a pretty simple problem," he says.

If people would simply pay the cost of using the atmosphere as a dump for carbon dioxide, that would create a powerful incentive to dump less and invest in cleaner ways to generate energy. But how do you do that?

"We need to put a price on carbon, so that when anyone, anywhere, anytime does something that puts carbon dioxide in the atmosphere, there's a price tag on that," he says.

His colleagues say that inspiration — now taken for granted — makes Nordhaus a prime candidate for a Nobel Prize. A lot of his work has been figuring out how big a price we should pay, and what form it should take. ...

21. New York Times: Your Ancestors, Your Fate

Inequality of income and wealth has risen in America since the 1970s, yet a large-scale research study recently found that social mobility hadn’t changed much during that time. How can that be?

The study, by researchers at Harvard and Berkeley, tells only part of the story. It may be true that mobility hasn’t slowed — but, more to the point, mobility has always been slow.

When you look across centuries, and at social status broadly measured — not just income and wealth, but also occupation, education and longevity — social mobility is much slower than many of us believe, or want to believe. This is true in Sweden, a social welfare state; England, where industrial capitalism was born; the United States, one of the most heterogeneous societies in history; and India, a fairly new democracy hobbled by the legacy of caste. Capitalism has not led to pervasive, rapid mobility. Nor have democratization, mass public education, the decline of nepotism, redistributive taxation, the emancipation of women, or even, as in China, socialist revolution.

To a striking extent, your overall life chances can be predicted not just from your parents’ status but also from your great-great-great-grandparents’. The recent study suggests that 10 percent of variation in income can be predicted based on your parents’ earnings. In contrast, my colleagues and I estimate that 50 to 60 percent of variation in overall status is determined by your lineage. The fortunes of high-status families inexorably fall, and those of low-status families rise, toward the average — what social scientists call “regression to the mean” — but the process can take 10 to 15 generations (300 to 450 years), much longer than most social scientists have estimated in the past. ...

Economics Links

1.  Brookings: Prospects for Ending Extreme Poverty by 2030

2. Carpe Diem: World trade and output both reached new all-time record highs in November and are nearly 10% above previous peaks

3. PBS Newshour: More than 200 million people were unemployed in the world in 2013

Worldwide, the number of unemployed people rose by 5 million in 2013 to 202 million, according to the International Labor Organization’s Global Employment Trends report. The global unemployment ratio of youth to adults has reached a new high. The jobless rate for 15- to 24-year-olds hit 13.1 percent in 2013 (or 74.5 million), nearly three times the adult rate.

The organization predicts unemployment will worsen, with 215 million jobless by 2018. Roughly 40 million net jobs will be added each year, the ILO estimates, but that won’t be enough to absorb the 42.6 million people expected to enter the labor force each year. ...

4. Conversable Economist: Limited U.S. Power in a Globalizing Economy

Just to be clear, the U.S. economy is not becoming a economic minnow like Belize or Burundi. But 65 years ago, as the high-income countries climbed out of the wreckage left by World War II and today's emerging economies had not yet engaged in the global economy, the U.S. economy had an extraordinary time of dominance. For a time in the 1960s, it was common to hear that the planned economy of the USSR would outstrip the U.S. economy. In the 1970s and into the 1980, Japan was going to rule the world economy. Around 2000 and the launch of the euro, there was talk about the economic rise of the European Union. But now, we are seeing the rise of a multipolar and distributed world economy, with faster growth happening in the emerging economies, but with stronger linkages of trade and global supply chains reaching across the world economy. The U.S. can certainly be an active and leading participant in shaping the world's economic future. But neither the U.S., nor some combination of high-income countries around the world, has the power to dictate what configurations will emerge.

5. Business Insider: Here's A Chart Of Interest Rates Going Back To 3000 BC

6. PBS: Is the famous ‘paradox of choice’ a myth? Barry Schwartz

"Paradox of choice" is tha notion that too many choices become overwhelming and make life decisions less satisying.

... Often people choose on the basis of essentially irrelevant features of plans, just because the relevant features are too complex to evaluate. Has anyone ever suggested that the sensible alternative to too many options is a single option? Absolutely and unequivocally not. Psychology has known about “single option aversion” for a half century. With too few options, there is the risk that none will be satisfactory, whereas with too many, there is the risk of paralysis, confusion and dissatisfaction.

The trick is to find the middle ground — the “sweet spot” — that enables people to benefit from variety and not be paralyzed by it. Choice is good, but there can be too much of a good thing. Adam Grant and I recently published a paper suggesting that this “too much of a good thing” phenomenon is pervasive in psychology. ...

7. TED: Paul Piff - Does money make you mean?

"It's amazing what a rigged game of Monopoly can reveal. In this entertaining but sobering talk, social psychologist Paul Piff shares his research into how people behave when they feel wealthy. (Hint: badly.) But while the problem of inequality is a complex and daunting challenge, there's good news too. (Filmed at TEDxMarin.)"

8. Forbes: Downton Abbey Makes A Powerful Case For Economic Freedom

... One of the great things about Downton Abbey is that it allows fans to escape their worries and fantasize about life on a luxurious estate in early 20^th century England. But the truth is, few of us could tolerate what we’d be forced to live with, and live without, in that world. ...

9. Carpe Diem: The middle class is shrinking ... because they are moving into the upper class! Census data on income distribution reveal evidence of rising income levels for a rising share of American households

10. AEI: This chart shows how tough it is for the poor to recover from a bad start in life

11. Business Insider: Millennials Are The Most Financially Conservative Generation Since The Great Depression

... According to a new report from investment banking company UBS, Millennials are the most financially conservative generation to come around since the Great Depression. The report, which focused on investors between the ages of 21 and 36, found that Millennials are risk averse when it comes to investing — dedicating 52% of their investment portfolios to cash, compared to 23% cash for other investors. They are also more likely to believe that working hard (69%) and living frugally (45%) puts you on the path to success rather than long-term investing (28%). ...

12. NPR: The Middle Class Took Off 100 Years Ago ... Thanks To Henry Ford?

January 1914 was a frigid month in Detroit — much like January 2014 has been, but nonetheless thousands lined up in the bitter cold outside to take Henry Ford up : $5 a day, for eight hours of work in a bustling factory.

That was more than double the average factory wage at that time, and for U.S. workers it was one of the defining moments of the 20th century. Five dollars in 1914 translates to roughly $120 in today's money. While many economists say today's employers could take some pointers from Ford, they also say 2014 is a totally different world for U.S. businesses and workers. ...

... "It was mainly to stabilize the workforce. And it sure did," Kreipke says. "And raised the bar all over the world."

He says to understand why Ford thought this was a smart move in January 1914, you have to go back to another huge shift that happened a few months earlier: By 1913, Model T production totaled 200,000 — a feat made possible by the creation of the first moving assembly line. Conveyor belts transported small parts to workers, each of whom performed a specific task.

This tremendously sped up production, but Ford still had a problem: While he had standardized production, he hadn't standardized his workforce. Now, he didn't need particularly skilled workers; he just needed ones who would do the same repetitive, specialized tasks hour after hour, day after day.

Kreipke says there was chronic absenteeism and lots of worker turnover. So Ford gambled that higher wages would attract better, more reliable workers. ...

... "Today, overwhelmingly employers view the lowest wage as the most competitive wage," Shaiken says.

These days, global supply chains feed a hypercompetitive auto industry where no one wants to give up even an inch of ground, and keeping up with technology takes precedent over stabilizing the workforce. This just isn't Henry Ford's economy anymore, Shaiken says.

"There are very real economic pressures out there that push down on wages," he says. "So it's not a simple story, but that doesn't mean that there isn't a core truth into what Ford found." ...

13. Business Insider: An Economist Explains Why Wage Growth Is Poised To Take Off

14. Conversable Economist: U.S. Household Finances Rebound

15. Greg Mankiw: Does income inequality increase mortality?

Angus [Deaton] writes the following (emphasis added):

Darren Lubotsky and I ⁷ have investigated the relationship between income inequality, race, and mortality at both the state and metropolitan statistical area level. In both the state and the city data, mortality is positively and significantly correlated with almost any measure of income inequality. Because whites have higher incomes and lower mortality rates than blacks, places where the population has a large fraction of blacks are also places where both mortality and income inequality are relatively high. However, the relationship is robust to controlling for average income (or poverty rates) and also holds, albeit less strongly, for black and white mortality separately. Nevertheless, it turns out that race is indeed the crucial omitted variable. In states, cities, and counties with a higher fraction of African-Americans, white incomes are higher and black incomes are lower, so that income inequality (through its interracial component) is higher in places with a high fraction black. It is also true that both white and black mortality rates are higher in places with a higher fraction black and that, once we control for the fraction black, income inequality has no effect on mortality rates, a result that has been replicated by Victor Fuchs, Mark McClellan, and Jonathan Skinner⁹ using the Medicare records data. This result is consistent with the lack of any relationship between income inequality and mortality across Canadian or Australian provinces, where race does not have the same salience. Our finding is robust; it holds for a wide range of inequality measures; it holds for men and women separately; it holds when we control for average education; and it holds once we abandon age-adjusted mortality and look at mortality at specific ages. None of this tells us why the correlation exists, and what it is about cities with substantial black populations that causes both whites and blacks to die sooner.

In a review of the literature on inequality and health, I note that Wilkinson's original evidence, which was (and in many quarters is still) widely accepted showed a negative cross-country relationship between life expectancy and income inequality, not only in levels but also, and more impressively, in changes. But subsequent work has shown that these findings were the result of the use of unreliable and outdated information on income inequality, and that they do not appear if recent, high quality data are used. There are now also a large number of individual level studies exploring the health consequences of ambient income inequality and none of these provide any convincing evidence that inequality is a health hazard. Indeed, the only robust correlations appear to be those among U.S. cities and states (discussed above) which, as we have seen, vanish once we control for racial composition. I suggest that inequality may indeed be important for health, but that income inequality is less important than other dimensions, such as political or gender inequality.¹⁰

16. Pew Research: There's More to the Story of the Shrinking (Gender) Pay Gap

17. The Daily Beast: No, Women Don’t Make Less Money Than Men

... In its fact-checking column on the State of the Union, the Washington Post included the president’s mention of the wage gap in its list of dubious claims. “There is clearly a wage gap, but differences in the life choices of men and women… make it difficult to make simple comparisons.” ...

...  Much of the wage gap can be explained away by simply taking account of college majors. Early childhood educators and social workers can expect to earn around $36,000 and $39,000, respectively. By contrast, petroleum engineering and metallurgy degrees promise median earnings of $120,000 and $80,000. Not many aspiring early childhood educators would change course once they learn they can earn more in metallurgy or mining. The sexes, taken as a group, are somewhat different. Women, far more than men, appear to be drawn to jobs in the caring professions; and men are more likely to turn up in people-free zones. In the pursuit of happiness, men and women appear to take different paths.

But here is the mystery. These and other differences in employment preferences and work-family choices have been widely studied in recent years and are now documented in a mountain of solid empirical research. By now the President and his staff must be aware that the wage gap statistic has been demolished. This is not the first time the Washington Post has alerted the White House to the error. Why continue to use it? ...

18. Atlantic: How When Harry Met Sally Explains Inequality

A new study says that educated people marrying each other has increased inequality by 25 percent.

19. Reuters: The real future of U.S. manufacturing

... The assertion that the United States, or any nation, requires continued investment in the technologies that will drive future production is indisputable. On that score, at least, the Obama White House is fighting the proverbial good fight.

The contention, however, that these technologies and the factories that harness them for production will be sources of well-paid, solidly middle-class jobs, is flawed. In our political debates, we maintain the comforting fiction that a manufacturing revival can and will go hand-in-hand with a jobs revival. Yet, as Obama’s initiative shows, the two can be — and increasingly are — uncoupled.

The issue is not the hollowing-out of manufacturing as defined by less production. Yes, many less expensive, simpler products are now made more cheaply elsewhere and are unlikely to be made in the United States anytime soon — even with the “on-shoring” of manufacturing. Though China ceases  to be the place of low-cost production, Vietnam, the Philippines and who knows where else (even Mexico) will be more attractive for apparel, furniture, electronics and anything plastic for a long time to come.

The high-end production that these new U.S. innovation hubs seek to promote is indeed in demand around the world. It is something where, as yet, China and other low-cost manufacturing centers have not excelled. This is why China actually imports considerable billions of higher-end equipment – particularly from Japan and Germany. So it is true that the United States could have a competitive advantage, especially given the plethora of research universities and the wealth of highly-educated talent that can be used for just this type of production.

But all this is not the same as a job creator for a workforce of at least 120 million and counting in nation of more than 320 million people. These high-tech factories might employ hundreds of people in conjunction with industrial robots, using sophisticated software systems for design and production. These factory workers bear little resemblance to the 1950s line workers doing rote tasks. They are more like Silicon Valley engineers or lab technicians. These are high-skill jobs — and not nearly as plentiful as the factory jobs of the past. ...

Related: Bloomberg - Factory Jobs Are Gone. Get Over It

... In 1953 manufacturing accounted for 28 percent of U.S. gross domestic product, according to the U.S. Bureau of Economic Analysis. By 1980 that had dropped to 20 percent, and it reached 12 percent in 2012. Over that time, U.S. GDP increased from $2.6 trillion to $15.5 trillion, which means that absolute manufacturing output more than tripled in 60 years. Those goods were produced by fewer people. According to the Bureau of Labor Statistics, the number of employees in manufacturing was 16 million in 1953 (about a third of total nonfarm employment), 19 million in 1980 (about a fifth of nonfarm employment), and 12 million in 2012 (about a tenth of nonfarm employment).

Service industries—hotels, hospitals, media, and accounting—have taken up the slack. Even much of the value generated by U.S. manufacturing involves service work—about a third of the total. More than half of all people still employed in the U.S. manufacturing sector work in such services as management, technical support, and sales. ...

 20. PBS: Paul Soloman on Man vs the Machine: Will Human Workers Become Obsolete?

 21. Huff Post: The End of Capitalism

Interesting thoughts. I don't know if he has it just right, but I do think he is correct that we may be on the verge of something as transformative to capitalism as industrialization was to agricultural societies:

... The location of creation has switched. Under industrial capitalism, machines operating centrally created riches. James Watt perfected his steam engine, but then the machines took on a life of their own - the machines themselves, and machine-like corporations built around them, churned out money. People danced around the edges, enlarging and improving the machines, putting them together in large mills or mines to turbo-charge productivity, adapting their pace of work to that of the machines. The machines and the capitalists were in charge.

Now it is not machines or their owners, but creative individuals who are center-stage. People not only invent new technology - they are the new technology. As sociologist Manuel Castells says, "For the first time in history, the human mind is a direct productive force ... Computers, communication systems, and genetic decoding and programming are all amplifiers and extensions of the human mind."
In the West, knowledge has become personalized. Open innovation requires it. The effect of open innovation is to transfer initiative and wealth from established corporations to new ones, and from shareholders to individuals. From thought to action, individuals are at the heart of creation, including wealth creation. Every element of the unique human personality takes part in creation - intellect, imagination, emotion, calculation, empathy, and the ability to evoke enthusiasm from other seriously talented people. Each person does it their way. Steve Jobs may not have been the nicest person in Silicon Valley, but he got amazingly talented people to distort reality and create previously unimaginable products. The individual is everything.

In all kinds of ways, therefore, we are moving away from capitalism, from an economy centered on capital and large, established, hierarchical corporations. But we are not moving from private hierarchy to public hierarchy, from capitalism to socialism or communism. Free enterprise is alive and well - arguably too alive and well. The new system is even more market-oriented than capitalism, and much more decentralized. It is as decentralized as any system can possibly be, because it is decentralized to individuals, and above all to a tiny minority of new superstar individuals. Welcome to the personalized economy. ...

22. Carpe Diem: Cash for kidneys will solve the organ shortage, save money spent on dialysis, and then we’ll wonder why it took so long

(Not necessarily agreeing here. Just reporting.)

Economists Gary Becker and Julio Elias make the case in today’s WSJ that a market for organs and donor compensation of about $15,000 would eliminate the growing kidney shortage.  As the chart above shows, the kidney waiting list has nearly doubled from 50,000 in 2001 to almost 99,000 today, while the number of annual kidney transplant operations has increased only slightly from 14,279 in 2001 to fewer than 17,000 in 2013. Over the last eight years, kidney transplants have remained stuck at slightly below 17,000 per year, while the kidney waiting list has swelled by almost 30,000.  Therefore, there an additional 30,000 patients today (99,000) than in 2006 (69,600) competing for the same number of transplants. And that’s why, as Becker and Elias point out, the average waiting time for a kidney has increased to 4.5 years from 2.9 years a decade ago. The authors argue that “Paying donors for their organs would finally eliminate the supply-demand gap.”

Isn’t donor compensation immoral? No, according to Becker and Elias (emphasis added: ...

Economics Links

1. The Atlantic: If You Really Care About Ending Poverty, Stop Talking About Inequality

Don’t mind the rich-poor gap. Statistical analysis shows three factors—overall income growth, marriages, and local government spending—matter most for poorer children chasing the American Dream. ...

... But for all the new attention devoted to the 1 percent, a new dataset from the Equality of Opportunity Project at Harvard and Berkeley suggests that, if we care about upward mobility overall, we’re vastly exaggerating the dangers of the rich-poor gap. Inequality itself is not a particularly potent predictor of economic mobility, as sociologist Scott Winship noted in a recent article with his colleague Donald Schneider based on their analysis of this data.

So what factors, at the community level, do predict if poor children will move up the economic ladder as adults? What explains, for instance, why the Salt Lake City metro area is one of the 100 largest metropolitan areas most likely to lift the fortunes of the poor and the Atlanta metro area is one of the least likely?

Harvard economist Raj Chetty, a principal investigator at the Equality of Opportunity Project, has pointed to economic and racial segregation, community density, the size of a community’s middle class, the quality of schools, community religiosity, and family structure, which he calls the “single strongest correlate of upward mobility.” ...

2. AEI Ideas: 70% of Americans born at the bottom never reach the middle

... But while intergenerational mobility has not worsened, it has failed to improve. Perhaps it would have worsened if not for the war on poverty, or perhaps we have not reduced poverty enough. More likely, income is less important for child mobility — and income inequality less consequential — than Great Society liberalism asserted.

We need a war on immobility — a bipartisan crusade to identify and address the barriers that leave 70 percent of poor children below the middle class as adults. ...

3. PBS: Poverty rates surge in American suburbs

... According to Kneebone, since 2000, the number of poor people living in suburbs has grown by 65 percent. 

For example, poverty is up by almost 16 percent in the suburbs of Pittsburgh.  Up more than 27 percent in the suburbs of providence.  Nearly 79 percent outside Seattle.  And in the suburbs of Austin, Texas, the number of poor has swelled almost 143 percent.  More poor people now live in America’s suburbs than in cities or in rural areas.

The main explanation for this shift is simply demographics.  Many more Americans have moved to suburbs in recent years, and that growth included low-income residents and new immigrants.  Other factors - suburbs are still recovering from the foreclosure and financial crises.  Kneebone says federal programs for the poor were mostly designed back in the 60’s with rural or urban communities in mind, and when hard times came to the suburbs, many weren’t prepared. ...

4. Family Studies: Why Working-Class Men Are Falling Behind

... All of these things mentioned above—early reliance on stimulating entertainment, lower educational attainment, disconnection from families and role models, and the attractions of different, “edgy” subcultures—contribute to a widening gulf between those more connected to family, work, and society, and those without these commitments. While men are losing connections, women continue to participate in the labor force, attend religious services more often, and belong to other community and civic organizations. This is partly because many have dependent children and need to support them, whereas men can to a large extent avoid this responsibility.

Men who are not committed to families enjoy all the options that a consumer culture gives them, have more independence and freedom, and thus are found in a wider array of subcultural activities that take men away from consistent work and commitment to families. At the same time that non–college-educated men have fewer economic opportunities, they have more opportunities to indulge in various activities. That’s a recipe for ever-widening gaps between these men and the rest of society.

 5. Business Insider: The Most Damning Chart That Shows How Far The Economy Still Has To Recover

6. New York Times: More U.S. Economists See Half-Full Glass

Record exports and the smallest trade deficit in four years. Healthier consumer spending, including the strongest annual increase in automobile sales since 2007, spurred by a booming stock market and an improving housing sector. And a slow but steady pickup in job creation that has pushed unemployment to its lowest level since 2008.

The confluence of all these forces in recent weeks has prompted economists to sharply revise their expectations for growth in late 2013 and early 2014, and prompted hopes that a more sustained economic expansion has finally arrived.

Plenty of caution is in order. It is a refrain that has been heard several times since the end of the Great Recession, and frustrated job seekers and income-stretched workers have plenty of reasons to be dubious about the upbeat forecasts.

Still, a series of arrows from disparate parts of the economy in both the United States and elsewhere around the world are finally pointing in the right direction, experts and policy makers say. ...

7. AP: Gloomy Americans foresee a downhill slide to 2050

WASHINGTON (AP) -- Ask people to imagine American life in 2050, and you'll get some dreary visions.

Whether they foresee runaway technology or runaway government, rampant poverty or vanishing morality, a majority of Americans predict a future worse than today.

Whites are particularly gloomy: Only 1 in 6 expects better times over the next four decades. Also notably pessimistic are middle-age and older people, those who earn midlevel incomes and Protestants, a new national poll finds. ...

8. Bloomberg: American Consumers in 2013 Most Upbeat Since Before Recession

American consumers in 2013 were more upbeat than at any time in the previous six years as views on the economy, finances and the buying climate improved.

The Bloomberg Consumer Comfort Index (COMFCOMF) averaged minus 31.4 for 2013, the highest since 2007, when it was minus 10.5. The weekly index fell for the first time since mid-November, dropping to minus 28.7 for the period ended Dec. 29, from minus 27.4.

An improved job market, higher stock prices and rising home values lifted sentiment at the end of the year and helped drive holiday retail shopping. Stronger wage and employment growth would help propel bigger gains in confidence and encourage Americans to boost spending, which accounts for almost 70 percent of the economy. ...

9. Conversable Economist: The Slowdown in Rising U.S. Healthcare Costs

...The red line makes two obvious points. First, the slowdown in rising health care costs started back around 2002 or 2003. Indeed, health care economists have been writing about it for a couple of years now, and OECD evidence point out that a similar slowdown seems to be occurring across high-income countries. Thus, eager claims by Obama administration officials about how the Affordable Care Act--although still far from fully implemented--is bringing down the rise in health care costs are a prime example of finding a parade, running to the front, and then claiming to lead the parade. As the writers of the Health Affairs article note: "The Affordable Care Act (ACA), which was enacted in March 2010, had a minimal impact on overall national health spending growth through 2012." ...

10. Conversable Economist: The median woman's wage to the median man's wage has been closing over time

11. Why Not Give Money Instead of a Gift?

"... Ariely, a good friend of Making Sense, whom we featured prominently in our segment about teaching kids how to save, most recently appeared in our segment on the economic waste of Christmas gift-giving, explaining why non-monetary gifts are more socially acceptable. Money's an awkward gift, and, as Ariely explains in the web-exclusive video above, a poor motivator. ..."

12. The Atlantic: Should Your Minimum Wage Depend on Your Age?

Speaking on Fox News recently, conservative columnist Charles Krauthammer proposed what, to many, might have sounded like a rather novel compromise on the minimum wage. His idea? We should have two of them, a higher minimum for "breadwinners," and a lower minimum for everybody else.

Here was Krauthammer's thinking, paraphrased. It might be hard to feed a whole household on $7.25 an hour. But raising the minimum is most likely to hurt teenagers and minorities who rely on low-paid, entry-level jobs to get a foothold in the working world. So how do you lend a hand to hard-pressed families without penalizing the young? Force employers to pay the "breadwinners" more, and everybody else less. 

He called his two-tiered solution "a reasonable answer that Republicans and conservatives could offer." ...

... Klein is right that that whole "breadwinner" concept would probably be more trouble than it would be worth. But what if we tweaked the idea just a little bit, and based the minimum wage on something more straightforward, like a worker's age? 

We wouldn't be the first country to try it.  Take Australia. ...

13. Forbes: Raising Minimum Wage? How About Raising Employee Ownership?

With an eye towards the 2014 midterms, the administration is keen to talk about something other than health care and is banging the drum for raising the federal minimum wage.  Republicans — voicing concerns about job loss and impact on small businesses — will oppose an increase and the issue will go nowhere at the federal level.

For fair-minded policy makers interested in helping working families today – and not just pushing a campaign issue – there is a different answer. It is one that has bipartisan support and could actually get passed: encourage companies to provide greater ownership opportunities or revenue sharing to all their workers. ...

14. PBS: Who Counts as Poor in America?

Fifty years ago, President Lyndon Johnson announced a legislative agenda to wage "unconditional war on poverty in America." But how do we know what poverty is in America?

15. Here's How The U. S. Bureau Keeps Track Of Poverty In America

Economics Links

1. Carpe Diem: 5 Reasons Why 2013 Was The Best Year In Human History

1. Fewer people are dying young, and more are living longer. ...
2. Global economic growth in the past five decades has dramatically reduced poverty and made people around the world happier. ...
3. War is becoming rarer and less deadly. ...
4. Rates of murder and other violent crimes are in free-fall. ...
5. There’s less racism, sexism, and other forms of discrimination in the world. ...

2. Everyone is putting out their most important economic charts list for 2013:  Atlantic: The Most Important Economic Stories of 2013—in 44 Graphs.  Economist: 2013 in charts.  Huffington Post: The 13 Most Important Charts Of 2013.

3. Economist: The world has become better fed over the past 50 years

MANY people will groan after stuffing themselves on a Christmas feast. A traditional three-course turkey dinner can be as much as 3,500 calories. Such indulgences are a luxury in many parts of the world—but thankfully less so. Over the past half-century, the amount of food that people consume has increased (measured in calories), according to the UN’s Food and Agriculture Organisation. Our interactive map and chart tracks countries across five decades, letting users select places, years on the timeline or any chart-line. (It performs poorly on smartphones; our apologies.) ...

In a related story at NPR: More People Have More To Eat, But It's Not All Good News

... The good news is: The percentage of the world's population getting what the researchers say is a sufficient diet has grown from 30 percent to 61 percent.

In 1965, a majority of the world survived on less than 2,000 calories a day per person. This was especially true in parts of the Middle East, Africa, Latin America, China and Southeast Asia. Now, 61 percent of the world has access to 2,500 or more calories a day.

But one thing the scientists discovered is that the countries that have a history of food insufficiency didn't just up and start growing lots more food. Instead, for the most part they're increasing supply by importing food from abroad. ...

I'm unclear why the author thinks importing food is a problem but other challenges he mentions in the article are an issue.

4. Carpe Diem: When it comes to home appliances, the ‘good old days’ are now: they’re cheaper, better, more energy efficient than ever

... In 1981, the 24-inch built-in dishwasher pictured above from a 1981 Wards Christmas catalog sold for $359.88. The average hourly manufacturing wage then was $7.42, meaning that it would have taken 48.5 hours of work at the average hourly wage for a typical factory worker to earn enough income 32 years ago to purchase the dishwasher above. ...

... The new Kenmore 24-inch built-in dishwasher pictured above is currently listed on the Sears website for sale at $539.99. At the current average hourly wage of $20.26 for production workers, the average factory worker today would only have to work 26.7 hours to earn enough pre-tax income to buy today’s energy-efficient dishwasher, which is only a little more than one-half of the 48.5 hour time-cost for the 1981 model.

Bottom Line: Today’s modern household appliances are not only cheaper than ever before, they are the most energy-efficient appliances in history, resulting in additional savings for consumers through lower operating costs. The average dishwasher today is not only more than twice as energy-efficient as a comparable 1981 model, but its real cost today is only about 50% of the price of the 1981 dishwasher, measured in hours worked at the average hourly wage. Put those two factors together, and the average American’s dishwasher today is about six times superior to the dishwasher of thirty years ago. ...

5. Carpe Diem: How much did real US median income increase from 1979 to 2007? A lot depends on the measure of income used

"The median income data [often cited] are on tax units rather than households, they do not include many government transfer payments, they are pre-tax rather than post-tax, they do not adjust for changes in household size, and they do not include nontaxable compensation such as employer-provided health insurance.

Does this matter?  Yes!"

6. American Interest: Economic Mobility is a Male Problem

The biggest victim of family breakdown might be lower-class men. In City Journal Kay Hymowitz has a fascinating yet alarming piece on how family breakdown hurts men’s prospects more than women’s. One of the most interesting facts she highlights is that if you separate out men from women, women in America are roughly as upwardly mobile as women anywhere else in the world. It’s only when you add men back in and compare the US whole population to populations abroad that things look bleak:

Numerous studies have confirmed that the U.S. has less upward mobility than just about any developed nation, including England, the homeland of the peerage. Yet, if you look at boys separately from girls, as the Finnish economist Markus Jäntti and his colleagues at the Bonn-based Institute for the Study of Labor did, the story changes markedly. In every country studied, girls are more likely than boys to climb up the income ladder, but in the United States, the disadvantage for sons is substantially greater than in other countries. Almost 75 percent of American daughters escape the lowest quintile—not unlike girls in the comparison countries of the United Kingdom, Denmark, Finland, Norway, and Sweden. Fewer than 60 percent of American sons experience similar success. ...

7. AEI Ideas: 3 charts that show what’s really going on with economic mobility in the US

8. Washington Post: Full employment, not inequality, should be the top economic priority - Ezra Klein

... While there are ways to reduce inequality without doing much about employment (say, by taxing the rich and using the proceeds on defense spending), it's hard to imagine full employment not doing much to reduce inequality. ...

... All that said, income inequality and social mobility really are startling trends that people should be very worried about and that the political system should be working aggressively to solve, or at least ameliorate. I don't have many policy disagreements with the folks focusing on inequality. But politics is about prioritization, and what politicians end up doing is in part driven by what problems their political coalitions are most worried about. ...

9. Conversable Economist: Falling Unemployment and Falling Labor Force Participation

10. Business Insider: This Map Shows Which Parts Of The Country Have A Huge Gender Gap In The Workforce

11. PBS: The rise of the 'new rich': 1 in 5 Americans will reach affluence in their lives

It's not just the wealthiest 1 percent.

Fully 20 percent of U.S. adults become rich for parts of their lives, wielding outsize influence on America's economy and politics. This little-known group may pose the biggest barrier to reducing the nation's income inequality.

The growing numbers of the U.S. poor have been well documented, but survey data provided to The Associated Press detail the flip side of the record income gap -- the rise of the "new rich." ...

12. Atlantic Cities: America's Wealth Is Staggeringly Concentrated in the Northeast Corridor

 

13. New York Times: Demand Soaring, Poor Are Feeling Squeezed

... Today, millions of poor Americans are caught in a similar trap, with the collapse of the housing boom helping stoke a severe shortage of affordable apartments. Demand for rental units has surged, with credit standards tight and many families unable to scrape together enough for a down payment for buying a home. At the same time, supply has declined, with homebuilders and landlords often targeting the upper end of the market. ...

14. Bloomberg: North America to Drown in Oil as Mexico Ends Monopoly

The flood of North American crude oil is set to become a deluge as Mexico dismantles a 75-year-old barrier to foreign investment in its oil fields.

Plagued by almost a decade of slumping output that has degraded Mexico’s take from a $100-a-barrel oil market, President Enrique Pena Nieto is seeking an end to the state monopoly over one of the biggest crude resources in the Western Hemisphere. The doubling in Mexican oil output that Citigroup Inc. said may result from inviting international explorers to drill would be equivalent to adding another Nigeria to world supply, or about 2.5 million barrels a day....

15. Oil Price: Cheap Fossil Fuels: Good or Bad for the World’s Poor?

... Let’s try reconciling all of the themes raised in Lomborg’s article and in my comments by reframing them in this way:

•    Yes, fossil fuels are going to be with us for a while. For that reason, a smart energy policy needs to focus on shifting the mix of fossil fuels, so far as is possible, to relatively clean natural gas and away from relatively dirty coal, while also keeping the pressure on for energy conservation across the board.
•    Price signals are one way to keep the pressure on. A carbon tax is a somewhat crude way to penalize relatively dirty fuels, in that climate change is not the only issue. We should be concerned, too, about sulfur and mercury from burning coal, urban air pollution from gasoline and diesel fuels, and local environmental risks of fracking for natural gas. Still, a carbon tax serves at least roughly to penalize the dirtiest fuels the most.
•    And yes, no environmental policy is going to be successful politically if it is seen as a matter of saving the earth versus helping the poor. Fuel subsidies have to go, since, realistically, they are a burden, not a boon, to the poor, but at the same time, some of the budgetary economies from the elimination of subsidies and some of the revenues from carbon taxes should  go toward smarter policies to help the world’s least advantaged.

Those ideas might help point us toward policies that are good for both the poor and the planet.

16.  askblog: The Market is a Process, not a Decision Mechanism

... I think that many commentators contrast the market and government as mechanisms for making decisions. In this contrast, the market sometimes has an efficiency advantage, but government is presumed to have a moral-authority advantage.

Instead, think of the market as a process for testing hypotheses. The process is brutally empirical, winnowing out losing strategies and poor execution. In contrast, elections are a much weaker testing mechanism. Elections are unable to winnow out sugar subsidies, improvident loan guarantees, schools that produce bad outcomes, etc. ...

17. Quartz:  Why the left-leaning Nelson Mandela was such a champion of free markets

One often overlooked aspect of Nelson Mandela’s legacy is South Africa’s economy. Parallel to everything amazing the man is connected to—freeing the country from the shackles of apartheid, subordinating retribution in favor of peace and reconciliation, and unifying a volatile nation at risk of civil war—he laid the groundwork for South Africa as the continent’s economic powerhouse. ...

18. Atlantic: Why Economics Is Really Called 'the Dismal Science'

... But this origin myth is, well, mythical. Carlyle did coin the phrase "the dismal science." And Malthus was, without question, dismal.

But Carlyle labeled the science "dismal" when writing about slavery in the West Indies. White plantation owners, he said, ought to force black plantation workers to be their servants. Economics, somewhat inconveniently for Carlyle, didn't offer a hearty defense of slavery. Instead, the rules of supply and demand argued for "letting men alone" rather than thrashing them with whips for not being servile. Carlyle bashed political economy as "a dreary, desolate, and indeed quite abject and distressing [science]; what we might call ... the dismal science.” ...

Economics Links

1. Poor and Middle Class Incomes Have Increased Significantly

"... Using this more sophisticated cost-of-living adjustment, which is preferred by the Congressional Budget Office and Federal Reserve Board, the increase in median household income was not 5 percent but 16 percent from 1979 to 2012. In 2007, like 1979 a peak in the business cycle, median income as defined by the Census Bureau was 25 percent higher than in 1979. 

Similarly, the official Census Bureau figures indicate that the household at the 20th percentile of income—poorer than 80 percent of households and richer than only 20 percent of them—was no better off in 2012 than in 1979. Switching to the better cost-of-living adjustment, however, shows a 10 percent improvement—and a 19 percent improvement comparing the 1979 peak to the 2007 peak.

The Census Bureau narrowly defines income to exclude the non-cash benefits that constitute an important part of the safety net, as well as employer-provided fringe benefits. That means it assumes that food stamps, Medicaid, Medicare, and employer-provided health insurance have no value to families trying to pay their bills and live more comfortably. For that matter, it considers income before taxes are deducted, missing any increase in disposable income that declining taxes may have yielded. 

From 1979 to 2007, median pre-tax income defined to include non-cash benefits rose by about 30 percent. I find about the same increase for median post-tax income, but my estimates do not account for tax credits. The Congressional Budget Office reports a 33 percent increase in pre-tax income and a 42 percent increase in post-tax income. At the 20th percentile, pre-tax income rose by 26 to 38 percent, depending on how Medicare and Medicaid are valued. The truth is almost surely somewhere in the middle. The post-tax increase was similar.

Finally, the Census Bureau figures do not account for the fact that households have become smaller over time. When households have fewer mouths to feed, a given amount of income goes a longer way, so even if incomes had not grown, Americans would have been better off. 

After adjusting for household size, median pre-tax income was about 40 percent higher in 2007 than in 1979, and according to CBO, post-tax income was 49 percent higher. At the 20th percentile, size-adjusted household income rose by 28 to 46 percent (with the health insurance valuation much more consequential than the inclusion of taxes).

These are sizable gains over time—just not as large as those experienced in the “Golden Age” of the 1950s and 1960s or as substantial as those seen at the top of the income distribution. ...

I want to study this report a little more.

2. 21 Charts On US Inequality That Everyone Should See

3. American Inequality in Six Charts

4. Here's Who Earns The Minimum Wage, In 3 Graphs

5. The Mythology of the Minimum Wage

... A more effective way to help those in need is for policymakers to work on improving programs that have a track record of success, such as the earned income tax credit (EITC). The EITC has proven to be very effective at moving Americans from out of work to having a job. The EITC is also more effective at targeting those in poor households because it is based on income and not just wages. In the end, the EITC benefits 56.1 percent of workers in poverty.

A strong social safety net is one of the most important things a nation can provide its people, but an increase in the minimum wage should not be part of the strategy. Redistributing income from those who need it the most--the job seekers--to those who need it the least-- job holders in high income households expands the income divide and is a counterproductive anti-poverty policy.

6. Should Walmart Pay Its Workers More?

... It’s important to highlight the plight of the working poor. At a time when food stamps are being cut and some on the right attempt to argue against the basic idea of a safety net it is useful to show what actual need looks like in this country, and that many who work hard still encounter real economic hardship. So by all means, let’s talk about increasing the EITC, making a better and more robust safety net, and ways to improve the welfare of low-income people in this country. But let’s not pretend that a huge percentage of the context in which this story is being discussed isn’t that it is Walmart’s duty to raise the wages above the current market level. I’m happy to talk about economic hardship and things to do about it, but let’s not ignore the conversation most people are actually having and the bad ideas actually being proposed.

7. Krugman: The Amorality Of The Market Economy Can Not Be Legislated Away

... The final argument is his attempt to get at what the liberal case for higher minimum wages is at it’s core: it’s about opposing the idea that wages are determined by prices.

In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand, the same as the price of apples or coal. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away.

I think Krugman’s points on the minimum wage are still very applicable despite being published way back in 1998.

8. The Minimum Wage and the Laws of Economics

I can’t open the paper these days without stumbling onto something about the minimum wage, which I take to be a good thing as it’s a simple, popular way to help address the problem of very low-wage work in America.  It’s not a complete solution; it’s not the only solution — it is, in fact, a relatively small-bore policy that sets an important labor standard: the government will compensate for the severe lack of bargaining clout among our lowest-wage workers by setting a floor below which we won’t allow their wages to fall.

It’s also that case that we need to look carefully these days at any policies that will help offset income inequality and wage stagnation, especially ones with low budgetary costs, or in this case, virtually none.  That’s one reason that I expect President Obama to amplify these points in an economics speech on Wednesday in Washington. ...

... Thus we can conclude that at least part of the problem with the low-wage labor market is the quality of the jobs, at least from the perspective of compensation, not the quality of the workers.  Sure, soft skills — showing up on time, dealing maturely with peers — are as important as ever, but people with shortcomings in those areas show up in all sectors.  Typical low-wage workers don’t lack the skills to do their jobs.  They lack the bargaining power to be paid decently for the work.  Relative to most others in the job market, they’re least able to press for a share of the profits they’re helping to generate.

When you think of it this way, a lot of the cramped economic debate opens up.  Since workers are not really paid their precise marginal product, you wouldn’t expect them to be laid off because of a moderate, mandated wage increase.  In periods of high profitability, you’d expect some of the wage increase to be paid for out of profits.  In a real-world context, you’d want a policy taking direct aim at deteriorated job quality and thus helping to offset the acute lack of bargaining clout among low-wage workers.

Does that mean completely ignoring the “laws” of supply and demand and setting the minimum at any level we want?  Of course not.  Workers may not be paid their “marginal product,” but there is some rough correlation between their pay and the value of their work (the great labor economist Richard Freeman gets at this by using the flat edge of the chalk to draw demand curves).  History teaches that moderate wage increases — say, those including not much more than 10 percent of the work force in their sweep — have nothing like the job-loss effects that opponents claim (which isn’t to say “zero,” but the beneficiaries far outnumber those hurt by the policy). ...

9. Retail Wages Are Market Wages, Not a Welfare Program

... Employers pay employees based on the worth of the employee, how much profit that person adds to the company’s bottom line. That amount has no connection at all to the cost of living or to any neutral observer’s idea of what a “fair” wage might be. A business has no reason to care or to know how much money you need (or think you need) to live the life you have chosen to live. Businesses care about what each employee does for them.

An employer may choose to pay a higher-than-market wage for a variety of reasons, but those reasons do not include charity. Some companies (including some retailers such as Costco) follow the efficiency wage hypothesis, positing that paying a higher than normal wage will induce the employee to work extra hard and be very loyal to that employer. This is perfectly rational economics if the hypothesis proves true. Companies are still only paying for what they receive; they have simply found a way to get more profit per employee by paying them higher wages. Other firms may pay more, or provide better benefits, to reduce employee turnover, which can be very costly to the company. Many tech firms are examples of both these behaviors.

The two most recent welfare reforms in this country, in 1975 and in 1996, have both tried to engineer a system of complementary social safety net features and incentives to work. In both cases, the welfare system was judged to have become too skewed toward the safety net and to actively be discouraging people from working. For example, in the 1990s a single mother of two would have needed a job paying well over $20,000 before it would have made economic sense to leave welfare and start working. Simply losing her Medicaid eligibility would have cost her around $10,000 per year even back then. People were being penalized for working. Most people will not work if it makes them poorer.

The point of the current system is to encourage people to work by not making them ineligible for benefits simply by virtue of being employed. Thus, having workers at retail stores or fast food restaurants who also qualify for public assistance is not a reason to condemn those employers, but instead one to praise the politicians and public policy experts who redesigned the welfare system. ...

10. When it comes to home appliances, the ‘good old days’ are now

11. About Half of Kids With Single Moms Live in Poverty

... Among all children living only with their mother, nearly half — or 45% — live below the poverty line, the Census Bureau said. For those living with just the father, about 21% lived in poverty. By comparison, only about 13% of children with both parents present in the household live below the poverty line. ...

12. The End Of The Era Of Multinationals

... But since I clearly can’t help myself, I will make a prediction. When tax reform does come, and whatever it means whenit gets here, U.S. multinationals will pay a price. Now, I’m no communist; in fact, I’m a practicing capitalist, but the multinationals sort of deserve what’s coming, because they’re sort of pigs. They have been working the U.S. tax system for years – just like they have been working tax systems around the world. They have managed to build up quite an arsenal of weapons to help themselves – things like transfer pricing, check-the-box, tax havens, deferral, just to name a few. All these weapons are legal. The system seems rigged their way. ...

13. The Largest U.S. Charities For 2013

Its incoming donations didn’t go up much. But by a wide margin, United Way remains No.1 on the annual Forbes list of the largest U.S. charities.

The Alexandria, Va.-based network of more than 1,000 separate units largely dependent on paycheck deductions received $3.9 billion in gifts for the year ending December 31, 2012, $24 million more than the previous year. In a difficult economic environment, that represented a 0.6% increase.

No. 2 again is the  Salvation Army , a church better known for its social services efforts whose U.S. headquarters also is in Alexandria.  Its donations rose 11% to $1.9 billion, more than making up for a 6% fall from the previous year.

A list newcomer comes in at No. 3, Task Force for Global Health, which is based in Decatur, Ga. To implement its health activities in 50 countries, including the U.S., the charity brought in $1.7 billion, most of it donated medicines.

Rounding out the billion-dollar-donation club:  Feeding America at $1.5 billion and Catholic Charities USA at $1.4 billion. Feeding America, a Chicago-based supplier of of food banks, saw its incoming gifts, mainly donated food, rise a whopping 33%, in contrast to a 10% donation drop at Catholic Charities, which directs its efforts toward fighting poverty. ...

Economics Links

1. Your personality type determines your paycheck

2. New York Times editorial: Yes, Economics Is a Science

... But the headline-grabbing differences between the findings of these Nobel laureates are less significant than the profound agreement in their scientific approach to economic questions, which is characterized by formulating and testing precise hypotheses. I’m troubled by the sense among skeptics that disagreements about the answers to certain questions suggest that economics is a confused discipline, a fake science whose findings cannot be a useful basis for making policy decisions.

That view is unfair and uninformed. It makes demands on economics that are not made of other empirical disciplines, like medicine, and it ignores an emerging body of work, building on the scientific approach of last week’s winners, that is transforming economics into a field firmly grounded in fact.

It is true that the answers to many “big picture” macroeconomic questions — like the causes of recessions or the determinants of growth — remain elusive. But in this respect, the challenges faced by economists are no different from those encountered in medicine and public health. Health researchers have worked for more than a century to understand the “big picture” questions of how diet and lifestyle affect health and aging, yet they still do not have a full scientific understanding of these connections. Some studies tell us to consume more coffee, wine and chocolate; others recommend the opposite. But few people would argue that medicine should not be approached as a science or that doctors should not make decisions based on the best available evidence.

As is the case with epidemiologists, the fundamental challenge faced by economists — and a root cause of many disagreements in the field — is our limited ability to run experiments. ...

For a related post: People Are Wondering If Economics Is Really A 'Science'

3. The Guardian: Economics students need to be taught more than neoclassical theory

... Despite this dominance, the few who did predict the financial crisis were economists from non-mainstream backgrounds. This clearly shows that alternatives have much to contribute to the discipline of economics. Neoclassical economics is the mainstream and it is vital for economics students to understand it, and there are reasons it has proved so alluring to so many great minds. While in recent decades it has often been used to advocate free markets, it can be used to argue for a socialist economy, and indeed was in the 1930s. So it doesn't necessarily restrict us to a single political viewpoint. However, it does not comprise the whole of economics – and nor should it. This is not about ideology, it is about improving economics education. ...

4. Does Studying Economics Breed Greed?

... Consider these data points: 

Less charitable giving: In the US, economics professors gave less money to charity than professors in other fields—including history, philosophy, education, psychology, sociology, anthropology, literature, physics, chemistry, and biology. More than twice as many economics professors gave zero dollars to charity than professors from the other fields.

More deception for personal gain: Economics students in Germany were more likely than students from other majors to recommend an overpriced plumber when they were paid to do it.

Greater acceptance of greed: Economics majors and students who had taken at least three economics courses were more likely than their peers to rate greed as “generally good,” “correct,” and “moral.”

Less concern for fairness: Students were given $10 and had to make a proposal about how to divide the money with a peer. If the peer accepted, they had a deal, but if the peer declined, both sides got nothing. On average, economics students proposed to keep 13% more money for themselves than students from other majors. ...

The author offers some remedies.

6. Six signs you’re reading good criticism of economics

1. The criticism is by an economist ...

2. They know the difference between academic economists, economic consultants, business, bureaucrats and politicians ...

3. They distinguish “good for business” and “good economics” ...

4. They criticise a particular, clearly defined area or use of economics ...

5. They criticise a specific economist ...

6. They recognise that economics and values cannot be untangled, no matter who is doing the analysis ...

5. We Don’t Need a ‘Third Way’, We Need More Non-Profits

The problem with advocating for third way economic system between capitalism and socialism is, as Matt Perman notes, there is no realistic third way. Fortunately, a third way isn’t needed since capitalism can do everything that so-called “third alternative” (e.g., distributism) want their system to do. For instance, one aspect of how capitalism can create a more “people-centered economy” is to increase the amount of capital that is dedicated to non-profits. ...

6. Deficits have fallen to 4% of GDP: Source

7. So why, exactly, is labor’s share of income on the decline?

... But e21′s Scot Winship trots out a differently theory (as seen below in a reverse-order Twitter exchange). He theorizes that the labor share of income used to be artificially high, reflecting overpayment to workers during the strong union era so wives could stay at home and raise the kids. Then as women entered the workforce, there was a “Great Correction” where male compensation stagnated, female compensation rose, and the labor share fell. Looking forward to Winship’s extended essay and research on the topic.

8. 1 In 8 Suffers From Chronic Hunger Globally, U.N. Report Says

Worldwide, roughly 1 in 8 people suffered from chronic hunger from 2011 to 2013, according to a new report from three U.N. food agencies.

They concluded that 842 million people didn't get enough food to lead healthy lives in that period, a slight drop from the 868 million in the previous report. ...

 9. BBC: Economy woes pile up for Latin America's leftists

Since the start of the global economic crisis, left-leaning Latin American politicians and pundits have been foretelling the end of economic "neo-liberalism" in their part of the world.

But now, five years after the collapse of US bank Lehman Brothers, we may instead be witnessing the twilight of economic "neo-leftism" in Latin America. ...

10. Why China’s middle class supports the Communist Party

... The common belief of the last 20 years outside China is that economic growth, a growing middle class, and the rise of entrepreneurs inevitably lead to democracy. Everyone knows democratic countries do not go to war with each other, and that a democratic China means thereby less of a "China threat."

The China threat may indeed disappear, but this is unlikely to be because of a rising middle class. The problems with these various equations are that different meanings of the middle class have been elided, even though they may have nothing in common. However it is conceptualized, the middle class in China is actually small despite the current rhetoric. And last but by no means least, China’s socio-political experience is not that of Europe or North America. The middle class in China remains an essential part of the state from which it has emerged and is not very likely to be the Chinese equivalent of the European or North American bourgeoisie with whom it is often equated. ...

11. How to Cut the Poverty Rate in Half (It's Easy)

... Using the dataset from the latest Census poverty report, I determined that if we cut a $2,920 check to every single American—adults, children, and retirees—we could cut official poverty in half. Economists consider this sort of across-the-board payment a “universal basic income.” You can think of it as Social Security for all, not just the elderly. 

The upside of giving everybody about $3,000 is that it’s a very easy policy to run and a surefire way to cut poverty in half. But it's a large program: it would require about $907 billion in 2012, or 5.6 percent of the nation’s GDP. (In a real implementation, we might exclude the more than 45 million Americans receiving OASI Social Security benefits from a basic income, bringing the cost down substantially.) ...

A challenge with this model is that as someone's income rises to the top of the poverty line, they will lose the $3,000 payment as they move past that line. They need a jump of $3,000 over the line to break-even. Some method is needed for the transition out of poverty if people are not to be trapped there.

12. NPR: Debate: For A Better Future, Live In A Red State?

13. Adam Smith on Self-Interests, Not Greed

... Smith’s views were clear: we are in “almost constant occasion for the help of[(our]brethren, and it is in vain for [us] to expect it from their benevolence only. [We] will be more likely to prevail if [we] can interest their self–love in [our] favour, and shew them that it is for their own advantage to do for [us] what [we] require of them”. 

Of course the same is true for solely self-interested greedy “butchers, brewers, and bakers”!  They will prevail only if they “lower their” price demands to what their customers “can go along with”.  For both self-interested buyers and for self-interested sellers they must mediate their self-interests to arrive at successful transactions.

The process by which they mediate their self-interests is by persuasion, as outlined by Adam Smith in his “Theory of Moral Sentiments” and how that is best achieved in negotiations or bargaining exchanges is explained in the sentence immediately before the “butcher, beer, baker” example: “Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.” (Wealth Of Nations, above).

I hope this is made clear by tutors at Harvard University and that you also make it clear in your classes too.

Greed is not good!  That is the opposite of what Adam Smith taught.

 14. PBS: The Three Reasons Countries Get Rich: Location, Location and Location (I'm not endorsing this view. It is much too deterministic. But it makes for interesting discussion.)

 15. Emerging Economies Nearing Half of Global Warming Emissions

... Developing nations' emissions are rising fast and the report predicted that their share of cumulative emissions would reach 51 percent by 2020. ...

Economics Links

1. Timothy Taylor (The Conservable Economist) has several interesting graphs on The Global Wealth Distribution

2. Britain Just Privatized Its Mail Service at a $1 Billion Discount

The largest initial public offering in Europe in more than two years could have been even larger. The privatization of the Royal Mail, in which around two-thirds of the company’s shares began trading Friday morning, raised £1.7 billion ($2.7 billion) for the government.

Frenzied trading pushed the Royal Mail’s shares up by nearly 40% within minutes of the opening bell. This followed enormous demand for the initial allocation of shares, with the retail portion of the offering oversubscribed by seven times and institutional investors bidding for 20 times as many shares as they were allowed. ...

3. The CPI for clothing has fallen by 3.3% over the last 20 years, while overall prices increased by 63.5%

4. Staying Put: Why Income Inequality Is Up And Geographic Mobility Is Down

MARTIN: In the early 1950s, you say in your piece, about 3.5 percent of all American households moved from one state to another in any given year. You said that this held up through the '70s and then started to fall around 1980. You're saying that the latest available data shows that interstate migration is stuck at about 1.7 percent. This is about the lowest level in...

NOAH: Yeah.

MARTIN: ...about, what, three decades?

NOAH: Yeah. Less than half. ...

... MARTIN: So what does? NOAH: Well, I think it's two things, and one is the familiar story of income inequality. And the other is - has to do with housing prices. Incomes have been stagnant for, really, going back to the late 1970s. They've been stagnant relative to the income growth that we saw before 1979, and they have been literally stagnant for about a dozen years. Median income is now a little below what it was in the late 1990s. And you combine that with rising housing prices, then it becomes difficult for people to move to jobs because they can't afford to live where the new jobs are. ...

... NOAH: Yes, that sounds to me like a very common experience. And yes, obviously people are moving, you know, but in the aggregate, people are moving a lot less than they used to. And, you know, when you look back through American history, I mean, you sort of think - American history really is the story of a succession of movements. There was the westward movement. There was the movement, in the early part of the 20th century, from farms to the cities. There was the great black migration of the early and middle 20th centuries. There was the move to the Sunbelt in the 1970s. That was really the last time people were, in large numbers, moving to jobs. People are still moving to the Sunbelt today, but now it's not moving to jobs. They're moving there for the warm weather or for the cheaper housing. ...

I'm not endorsing his solutions, but the analysis is interesting.

5. Why Did Jews Become Moneylenders? Because They Could

6. One reason C.E.O. pay keeps rising: Open Season

... the drive for transparency has actually helped fuel the spiralling salaries. For one thing, it gives executives a good idea of how much they can get away with asking for. A more crucial reason, though, has to do with the way boards of directors set salaries. ...

... This isn’t just an American problem. Elson notes that, when Canada toughened its disclosure requirements, executive salaries there rose sharply, and German studies have found something similar. ...

... Transparent pricing has perverse effects in other fields. In a host of recent cases, public disclosure of the prices that hospitals charge for various procedures has ended up driving prices up rather than down. And the psychological causes in both situations seem similar. We tend to be uneasy about bargaining in situations where the stakes are very high: do you want the guy doing your neurosurgery, or running your company, to be offering discounts? Better, in the event that something goes wrong, to be able to tell yourself that you spent all you could. And overspending is always easier when you’re spending someone else’s money. Corporate board members are disbursing shareholder funds; most patients have insurance to foot the bill. ...

7. Americans Significantly Overestimate The Percent Of People On Food Stamps

... Around 14.3% of the nation is on SNAP — roughly 1 in 7 Americans — but still people thought participation was much higher, with the average being 22.5%. ...

8. Europe Can’t Find Balance Between Green Goals and Growth

... Europe hoped to act as a global leader by setting its ambitious 2020 climate goals, but its position as a first mover in green policy has only managed to put European industry at a competitive disadvantage relative to the rest of the world. Green energy is more expensive than brown energy and must be propped up by government subsidies to gain significant market share. The costs of these subsidies get passed on to consumers, meaning households and businesses must pay out the nose for electricity. If you’re a decent-sized widget manufacturer in Germany, options in the developing world and shale-rich America start to look more appealing. ...

9. Yes, Economics Is a Science by Raj Chetty

... But the headline-grabbing differences between the findings of these Nobel laureates are less significant than the profound agreement in their scientific approach to economic questions, which is characterized by formulating and testing precise hypotheses. I’m troubled by the sense among skeptics that disagreements about the answers to certain questions suggest that economics is a confused discipline, a fake science whose findings cannot be a useful basis for making policy decisions.

That view is unfair and uninformed. It makes demands on economics that are not made of other empirical disciplines, like medicine, and it ignores an emerging body of work, building on the scientific approach of last week’s winners, that is transforming economics into a field firmly grounded in fact.

It is true that the answers to many “big picture” macroeconomic questions — like the causes of recessions or the determinants of growth — remain elusive. But in this respect, the challenges faced by economists are no different from those encountered in medicine and public health. Health researchers have worked for more than a century to understand the “big picture” questions of how diet and lifestyle affect health and aging, yet they still do not have a full scientific understanding of these connections. Some studies tell us to consume more coffee, wine and chocolate; others recommend the opposite. But few people would argue that medicine should not be approached as a science or that doctors should not make decisions based on the best available evidence. ...

Economics Links

1. Here's The Chart That Destroys What Republicans Are Saying About The Deficit

2. The 10 Most Popular Charts On The World's Most Amazing Economics Website

Here is one example: Nominal GDP (3.1% growth year over year in Q2):

3. Global trade volume and world industrial production both reached new record highs in July

4. Gas prices dip to eight-month low despite Middle East tumult

Gas prices are at the lowest they've been since late January despite continued unease across the Middle East. Much of the decline in gas prices is part of the seasonal change in supply and demand, but it also reflects a shifting global oil market.

5. 19 Charts That Will Restore Your Faith in the World Economy

Here is one example. Some economists see the Baltic Dry Index as one of the best indicators of global trade and economic vitality:

6. Here Are The Countries That Collect The Most And Least In Taxes

7. Commentary: Robots Taking All Our Jobs? Ridiculous

... If technology enables the same amount of work to be done with fewer people, the argument goes, then it must be bad for employment. More sophisticated variants of this thesis further claim that accelerating technological change has created too much churn in labor markets, and robots are now storming the last few bastions of scarce human abilities.

This tale is not new. The original British Luddites rose up in the early 1800s to oppose mechanization of the textile industry and went so far as to destroy looms that were replacing workers. In the two centuries since, whenever unemployment rates have risen there have been some who blamed the machines. Many even argued that we were heading toward mass permanent unemployment. ...

... Fortunately for workers and for those who understand the potential of new technologies, these ideas are essentially misguided speculation. They fly in the face of years of economic data as well as current trends.

They all fall into what economists call the "Lump of Labor" fallacy, the idea that there's a limited amount of labor to be done. In reality, labor markets aren't fixed. If jobs in one firm or industry are reduced, they're replaced by jobs in other areas of the economy. This is why we did not see massive unemployment as agriculture mechanized in the early 20th century -- the workforce shifted to other professions. ...

8. The Global Economy In 17 Beautiful Maps

For example:

 

9. Is Innovation Leading to a New Age of Productivity in the U.S.?

... So-called intelligent machines increasingly communicate among themselves and with people. Mobile devices allow round-the-clock interconnectivity. Computers crunch terabytes of data. Such innovations have convinced some economists that the stage is set for a wave of productivity gains to rival the one spawned by the 10-year Internet boom that began in 1995. "I'm quite optimistic," says Erik Brynjolfsson, a professor at the Massachusetts Institute of Technology's Sloan School of Management. Leaps in productivity would allow faster growth without generating higher inflation. Companies could pay their workers more while still enjoying healthier earnings. Rising tax revenue would make it easier for the U.S. to cut its budget deficit. ...

Economics Links

1. Did living standards improve during the Industrial Revolution?

... So, while the Industrial Revolution ultimately led to big increases in wealth, progress was unsteady. For much of the period, the average person was not reaping the benefits of economic change.

So much for wages. Other measures of standard of living should be considered. ...

This a great piece highlighting the methods economic historians use to evaluate standards of living.

2. Annual Food Inflation

3.  Robert Reich on free markets

... In reality, the "free market" is a bunch of rules about (1) what can be owned and traded (the genome? slaves? nuclear materials? babies? votes?); (2) on what terms (equal access to the internet? the right to organize unions? corporate monopolies? the length of patent protections? ); (3) under what conditions (poisonous drugs? unsafe foods? deceptive Ponzi schemes? uninsured derivatives? dangerous workplaces?) (4) what's private and what's public (police? roads? clean air and clean water? healthcare? good schools? parks and playgrounds?); (5) how to pay for what (taxes, user fees, individual pricing?). And so on.

These rules don't exist in nature; they are human creations. Governments don't "intrude" on free markets; governments organize and maintain them. Markets aren't "free" of rules; the rules define them....

All true, but the rules were not arbitrarily written yesterday. Centuries of trial and error are reflected in the rules. That doesn't make them all just or above modification, but neither are they a game thrown together at a whim. To claim there are no free markets because government frames elements of exchange is like saying there is no such thing as free speech because government frames elements of public dialog.

4. American Farmers Say They Feed The World, But Do They?

... So I called , an economist at Cornell University who studies international agriculture and poverty.

They're both right," he says, chuckling. "Sometimes the opposite of a truth isn't a falsehood, but another truth, right?"

It's true, he says, that bigger harvests in the U.S. tend to make food more affordable around the world, and "lower food prices are a good thing for poor people." ...

... But Mellon is right, too, Barrett says. The big crops that American farmers send abroad don't provide the vitamins and minerals that billions of people need most. So if the U.S. exports lots of corn, driving down the cost of cornmeal, "it induces poor families to buy lots of cornmeal, and to buy less in the way of leafy green vegetables, or milk," that have the key nutrients. In this case, you're feeding the world, but not solving the nutrition problems. ...

 5. Why the U.S. Needs to Fall Out of Love With Homeownership

... Less developed countries have consistently higher levels of homeownership, while more advanced nations combine higher levels of economic development with substantially lower levels of homeownership.  (The correlation between the two is -.40 overall and it rises to -.58 when she removed outliers Singapore, Norway, Luxembourg and Switzerland). American political rhetoric tends to equate rising homeownership rates with strong economic development. Instead, the opposite is true. The rate of homeownership declines as nations get wealthier.

One reason for this may be because people in less developed nations have fewer options of where to put their money. In agrarian economies, land ownership is the basic source and measure of wealth. In more advanced capitalist economies, people have many more investment options. Many of the places with the highest rates of homeownership are in former Communist nations of Eastern Europe. ...

... And numerous studies have found that excessive homeownership significantly distorts the economy, diverting investment away from much more needed areas like technology and knowledge.

Homeownership continues to make sense for many Americans. But for those whose income is limited or who are still building their careers, a house can be an anchor than limits their ability to move to where jobs are.  ...

6. Household Incomes Remain Flat Despite Improving Economy

7. Brazil's New Middle Class: A Better Life, Not An Easy One

Tens of millions of Brazilians have risen out of poverty over the past decade in one of the world's great economic success stories. The reasons are many: strong overall economic growth, fueled by exports. A rise in the minimum wage. A more educated workforce. And big government spending programs, including direct payments to extremely poor families.

But becoming middle class in Brazil means a better life, not an easy one. The new, lowest rung of the middle class is what in the U.S. would be called the working poor, with monthly incomes of between $500 and $2,000.

Yet this group is driving consumer spending in Brazil as they cobble together enough money to buy a television, a cell phone or pay for their children to go to a private school. ...

Self-Interest and Benevolence: Partners, not Antonyms (Part 1)

Self-Interest vs. Selfishness

Benevolence is a central theme of Christian ethics. Giving is considered one of the highest virtues. The antithesis of benevolence is selfishness. A central element of market economies is self-interest. Therefore, market economics is antithetical to Christian living, right?

This is the logic presented by many Christian social justice advocates looking for a new Kingdom economics. But the logic is wrong. It incorrectly equates “selfishness” with “self-interest.” It fails to appreciate that self-interest and benevolence are complementary expressions of human flourishing, as much as inhaling and exhaling are complementary expressions of bodily health.

As parents, we teach our children to wash their hands before eating, bundle up before going into the cold, and look both ways when crossing the street. We encourage them to do their homework, teach them to manage money, and train them with life skills to coexist with others. We encourage adults to buckle up, exercise, and get annual physicals. All of these things are about people being self-interested.

Without self-interest, an individual becomes a needless drain on the resources of others. Not only must others take care of themselves, but they must also manage the life of the self-disinterested person. Multiply the number of self-disinterested people, and before long, you have the collapse of the entire community. Our bodies and minds are resources entrusted to us by God; daily care of these resources is essential to good stewardship.

The scripture regularly appeals to self-interest to effect transformation in people’s lives. In Matthew 7, Jesus said, “Do not Judge …” Why? “… so that you may not be judged. For with the judgment you make you will be judged, and the measure you give will be the measure you get.” Isn’t this directly appealing to our self-interest, the avoidance of judgment?

In Matthew 16:25-26, Jesus teaches:

For those who want to save their life will lose it, and those who lose their life for my sake will find it. For what will it profit them if they gain the whole world but forfeit their life? Or what will they give in return for their life?

Isn’t the point here that our soul is more valuable than ownership of the whole world? Therefore, it is in our “self-interest” to protect our souls and avoid being deluded by worldly enticements.

What did Jesus say was the second greatest commandment, “Love your neighbor and hate yourself?” No. “Love your neighbor as you love yourself.” We love both neighbor and our self. It is in our “self-interest” to be other-centered, but we can’t know how to effectively be other-centered without first being self-interested.

What has this to do with economic concerns? Free and virtuous pursuit of self-interest is essential to economic production and human flourishing. But self-interest alone is insufficient.

[Continued] [Index]