Cafe Hayek - Latest Comments in Please Do Your Job

Re: Please Do Your Job

triticale — Sun, 05 Feb 2006 17:52:49 -0000

Income, income distribution, and changes in income tell only part of the story. Since 1980 I'd estimate that I've moved from the bottom to the top of the second quintile, but that doesn't describe how much better off I am. I'm not working anywhere near as hard for my money; instead of a hot, dangerous (I could show you scars) Rust Belt job I have an easy fun one in an industry which barely existed then. Thanks to the passage of time I no longer need to support a son out of that income; he's off in the bottom quintile himself now. Also thanks to the passage of time, I own two homes free and clear, and thanks to the Gingrich-era "tax cuts for the rich" I'm going to keep the couple hundred thousand I'm about to sell one of them for.

Maybe I'm missing something, but I fail to comprehend how I'm hurt by other people earning more as long as I'm living large on what I'm earning.

Re: Please Do Your Job

James — Sun, 29 Jan 2006 18:43:57 -0000

Making demands like "SHOW ME THE DATA" is nothing like bringing a knife to a gunfight. It's like bringing a bunker. By demanding more descriptive statistics, one can bypass uncomfortable issues like inference, coding, causation and interpretation entirely, all the while insisting that the other side is substituting faith for facts.

Re: Please Do Your Job

xteve — Sun, 29 Jan 2006 16:54:51 -0000

Someone should compile a chart using all the age statistics of the population & divide them into quintiles. If my assumptions on population growth are correct -- birthrates, life expectancies, etc -- then the data would show that old people keep getting older while the youngest people keep getting younger.

That'll show how absurd their analysis is.

Re: Please Do Your Job

averagejoe — Sun, 29 Jan 2006 16:26:26 -0000

The whole idea is to create more rich people who can invest their free capital in risky ventures that will benefit everyone and create returns that encourage more of the same activity.

The investments are like rains that continually raise the water level in the lakes. As the water rises it covers some of the rocks and lifts all seaworthy craft.

Re: Please Do Your Job

liberty — Sun, 29 Jan 2006 12:45:40 -0000

>The income gap has been noted throughout history as a strong factor in the rapid decline or overthrow of a society.

But weren't those societies ones with very low income mobility? The rich were nobles and the poor serfs or something to that effect. Yes, then the poor will revolt; but if the poor one day *are* the rich the next there is little reason to overthrow the government which allows this ascension, wouldn't you agree?

There may be politicians that see the gap as unfair, but most Americans think it is quite fair that hard work allows people to climb out of poverty and become the self-made wealthy.

Re: Please Do Your Job

Steven M. Warshawsky — Sun, 29 Jan 2006 12:39:35 -0000

When I first read the headline to this entry -- "Please do your job" -- I thought it referred to the studies that show that wealthier people are wealthy in substantial part because they work more than those who are less well off. Any professional or entrepreneur knows that you are unlikely to be successful simply clocking in at 9 and clocking out at 5. It takes time and effort to develop skills and then apply those skills effectively to the economic tasks at hand. For the vast majority, success comes only through sustained hard work.

Re: Please Do Your Job

Mike — Sun, 29 Jan 2006 08:45:18 -0000

The income gap has been noted throughout history as a strong factor in the rapid decline or overthrow of a society. Plutarch wrote almost 2000 years ago, "An imbalance between rich and poor is the oldest and most fatal ailment of all republics." You see this playing out a lot in South America today.

The numbers can be manipulated to support a wide degree of pre-conceived positions. But what seems to have the largest impact, in the end, is the perception of how wide - or unfair - the income gap is.

Re: Please Do Your Job

Kevin — Sat, 28 Jan 2006 19:30:27 -0000

Wow, peoples' reaction to the "disparity" never ceases to amaze me. I'm confident that there IS a growing disparity between the statistical high-end and low-end classes (not necessarily among the actual people who were in those classes at any time, they move) -- and furthermore I think that's HEALTHY, and I can't imagine a free economy that is growing in size and productiviy where this DOESN'T happen as a long-term trend.

As society becomes richer and moves up Mazlow's hierarchy, there is ever more money sloshing around to richly award those with the most valuable, desireable skill sets: NFL quarterbacks, brain surgeons, movie stars, best-selling authors become the locus of huge surges of demand at the margins, as people can better afford the luxuries of life -- football tickets, brain surgery, DVDs. And so yes these scarce people make 10 or 20 times what their predecessors did thirty years ago. (So what?)

That'll damn sure skew the upper quintile's averages.

Ditto, but to a lesser magnitude, for the skilled engineers, corporate VPs, consultants in the top 25% or 30% of the income scale.

But you don't seriously expect the burger flippers to make 20 times as much do you? An unskilled high school-dropout fry cook doesn't have much to offer the economy, so he's not going to make $30 an hour. If he did, what the hell incentive would there be for him to pick up skills that are actually needed? It's a profoundly good thing that a free economy guides people to maximize their own skill sets (whether or not they answer the call).

My analysis doesn't call on union membership or global competition as causal factors. BTW Look at Ford and GM right now to see the "benefits" of union membership evading economic reality just a bit too long.

Re: Please Do Your Job

medusa — Sat, 28 Jan 2006 14:26:30 -0000

Ok, I get it that some folks make more than others. But how do expenses figure in? Being a small-time bookkeeper, what I'm asking is: who cares if you make a lot of money if you also spend a lot of money? Where does that money go? Into other folks' pockets. What's the problem?

Rather than show the disparity in income between the bottom whatever and the top whatever, show me the disparity between the self-employed and the wage earner. That would be a telling number.

Re: Please Do Your Job

liberty — Sat, 28 Jan 2006 09:05:34 -0000

>I believe Sowell said that about 16 million households were in the bottom quintile and about 37 million were in the top.

That is frightening. You can make your own quintiles though, if you have household level data. A great source for cross-crountries comparisons of household level data, where you can make your own quintiles that are truly 20% of households in each is the Luxembourg Income Study - where data from most Western European countries and the US, Canada, etc (OECD countries) are comparable.

http://www.lisproject.org/

Re: Please Do Your Job

Cris Sullivan — Sat, 28 Jan 2006 08:32:05 -0000

How many people/households are in the bottom quintile? How many in the top quintile?

Thomas Sowell, on BookTV a few years back, pointed out that these quintiles are rarely based on population (This 60 million makes X while this 60 million makes Y), but based on WAGES EARNED. In other words, if there were a spread in salaries across America where the poorest people made 1 dollar/year and the richest made 100 dollars/year, even if there were 10 million people who made between 1-20 dollars and 100 million between 80-100 dollars, these same groups would be barking about the income inequality based on the quintiles.

I believe Sowell said that about 16 million households were in the bottom quintile and about 37 million were in the top.

Re: Please Do Your Job

Swimmy — Sat, 28 Jan 2006 07:20:05 -0000

"The Bush administrative is not in any real sense conservative, they are crony capitalists stacking the deck for their friends."

This is actually a valid point, though I don't think in the way you intended it to be. The Bush administration is not in any real sense conservative, and they are undoubtedly, like most politicians, guilty of handing out favors for their friends.

This hardly makes them capitalists, though. Capitalism is that thing where the government doesn't regulate / help businesses in the market. "Outsourcing" to India is not a government initiative and can not be blamed on a nebulous "we"; it is individuals and businesses voluntarily cooperating with each other for mutual gain. Were the Bush administration to support legislation to prevent this, *that* would be placating their friends, much like they did with the steel tariff.

Re: Please Do Your Job

Russell Nelson — Fri, 27 Jan 2006 22:08:04 -0000

Spencer: you're coming to a gunfight armed with only a knife. Let me try to explain it to you in small words:

The proportion of rich to poor used to have one value. Now it has another value. Everyone agrees that that's true. It's complete, total, and absolute nonsense to say anything, given only those two proportions, about the people involved. Maybe the people who used to be poor are now rich, thus the rich now are richer than the poor then, because the poor then are now the rich now.

Re: Please Do Your Job

Russell Nelson — Fri, 27 Jan 2006 21:45:52 -0000

save_the_rustbelt: I don't see your point. Economies change over time. Are you saying that everyone who has ever had a job is entitled to keep that job until they die? The skills needed for jobs, the inventions needed for products, the capital needs for production is never in equilibrium. Sometimes the rich get richer. Sometimes the rich get poorer. Sometimes the poor get richer. Sometimes the poor get poorer. It's simple economic nonsense to imply that the rich are getting richer off the backs of the poor, or that the poor get rich off the backs of the rich. You should spend more time reading and less time writing.

-russ

Re: Please Do Your Job

save_the_rustbelt — Fri, 27 Jan 2006 17:32:58 -0000

"Your point seems to be that people with few employable skills should not be allowed to work because Republicans benefit from it. Am I reading that right?"

Actually, people with plenty of employable skills and long track records are unemployed or more likely underemployed while we do every thing possible to boost China's economy and make Wall Street more prosperous.

My fellow conservatives are constantly complaining about redistribution, but they seem quite comfortable with the current upward distribution.

The Bush administrative is not in any real sense conservative, they are crony capitalists stacking the deck for their friends.

Re: Please Do Your Job

Econ-in-AK — Fri, 27 Jan 2006 13:56:30 -0000

RE: Sub-saharan Africans in the US

I see your logic, and I could see where you were going with the excerise. My point was more from an investment standpoint. I don't think there's that much demand for that many unskilled laborers in the U.S., besides, we already have a steady flow of immigrants vying for those jobs.

To make the move beneficial, to all parties, you'd have to put them where they could generate the best return on investment. I don't think that place is the U.S. right now. Furthermore, I think that's why you see many companies holding back investment. We've heard lot's about the amount of cash American companies are holding but not investing. Where do you invest it in the U.S.?

If you abolished minimum wage laws, then I'd agree with you. It doesn't make much sense otherwise and you'd really do everyone a disservice. China, India, SE Asian countries, and South America all have tremendous comparative advantages in terms of cheap labor, the new African labor would not be worth (on average) our minimum wage.

Re: Please Do Your Job

John Pertz — Fri, 27 Jan 2006 13:23:36 -0000

The answer to my question is the United States. Its the only nation in the world that could handle such a massive influx of population and not feel too many negative shocks from it. I dont think its a loaded question either. Its just that many times you will often hear people say that the U.S is bad for the poor and that Western Europe is good for the poor. So I tried to think deeply about that comment and I thought to myself if that were so then Western Europe would be the answer to the though expirement. However, it obviously isnt in comparison to America. America is the only nation in the world that could handle the influx and I submit that enmployment probably would not rise too much.

Re: Please Do Your Job

liberty — Fri, 27 Jan 2006 13:05:40 -0000

>To measure mobility, we're looking at how a worker can do compared to workers their own age or experience level.

Why? That was my point. Think about it. Most people in the bottom quintile are young or are part time workers (eg mothers who work part time as kindergarten teachers, etc). And most young people begin in the bottom quintile (think high school and college students, young workers in their twenties, internships, etc)

This doesn't "bias" the study, making it seem easier to get out of the bottom quintile - that *is* the bottom quintile.

Most of those young workers or immigrants move out of the bottom quintile - not to just on the other side of the line, most move two or three quintiles in their lifetime.

Then if you compare only against older workers it may not look like they moved very far, but that is because *all* the older workers have been able to do well and move out of the bottom quintile over their lifetimes. That is because the American Dream works, but the data makes it look like we have low mobility!

Its bizarre to say the least.

Re: Please Do Your Job

Econ-in-AK — Fri, 27 Jan 2006 13:03:54 -0000

Plus the labor would probably have to be fairly unskilled. Where would you put them? I'd probably put them to work building railroad roads, ports and sugar cane farms (or soybean farms). I hear some companies in Brazil can produce Ethanol for $0.80 per gallon. Perhaps that number could be reduced to $0.60 even; then you'd be looking at a substantial way to reduce dependence on oil. In Brazil I think it's federal mandate that you have to offer ethanol as a fuel and gasoline has to be 25% ethanol. Of course, this wouldn't necessarily have to be done in Brazil.

Re: Please Do Your Job

Econ-in-AK — Fri, 27 Jan 2006 13:00:38 -0000

"Lets say that you are in charge of moving a group of 50 million sub saharan Africans from the continent, what country would you send them to."

That's kind of loaded question. You wouldn't send them to the U.S. because we already have many workers here willing to work for low wages, and potentially a lot more if we continue to do a poor job of border control.

You'd send them to a developing country where they could build infrastructure and make ag or capital improvements funded by U.S. multi-nationals. The only problem is there aren't many places in the world where such a labor pool is needed and can't be found locally, and even less countries where the government is unobtrusive enough to make it profitable.

Plus the labor would probably have to be fairly unskilled. Where would you put them? I'd probably put them to work building railroad roads, ports and sugar cane farms. I hear some companies in Brazil can produce Ethanol for $0.80 per gallon. Perhaps that number could be reduced to $0.60 even, then you'd be looking at a substantial way to reduce dependence on oil.

Re: Please Do Your Job

Econ-in-AK — Fri, 27 Jan 2006 12:48:11 -0000

Shoot, I had a whole response typed out, then I clicked on one of your links and it disappeared.

Ironically, I'm just finishing up a paper on economic mobility for young workers in Alaska.

It's true that people can and do often move above the poverty line over time. However, people don't want to be just above the poverty line. Also, the poverty line is just a number, but the cost of living varies widely enough that what constitutes a living wage in one city/ara may not be true in another.

To measure mobility, we're looking at how a worker can do compared to workers their own age or experience level. Some of the links you pointed out had selection biases, or matched up their cohort with a cross-section of that year's earnings data.

As you said, yes, the American dream is alive and well. I can verify it's being fulfilled by many thirtysomething workers here in Alaska. You have to be very careful about how you deal with students and part-time workers in these studies. Throwing them into the mix, against older, full-time workers will pollute that lower quintile and make it easier to move up. My study took steps to avoid this and other issues as well.

I read through the links you provided, and I think they just back up the issues you point out. Longitudinal studies have to foll

Re: Please Do Your Job

John Pertz — Fri, 27 Jan 2006 12:37:43 -0000

I just wanted to offer a though expirement to the socialists on this board. Lets say that you are in charge of moving a group of 50 million sub saharan Africans from the continent, what country would you send them to. Think in terms of labor market regulation and what countries have sufficient capital to be able to create jobs that could handle such a massive influx of people. What country would you chose? BTW, what exactly is the difference between American liberalism and socialism. Certainly it is more moderate than Bolshevism but I do not think it is too many steps away from European social democracy.

Re: Please Do Your Job

liberty — Fri, 27 Jan 2006 11:52:16 -0000

>Russel is correct in claiming that this study doesn't confirm that. Only a longitudinal study could do that. The sad fact is the data exists, it just has to be employed the correct way. As usual, the devil is in the details (or methodology, if you will).

But the longitudinal data is there and the evidence is clear. Most of the poor are students and young workers - for example, the BLS tells us that the majority of those earning the minimum wage or less are under 25 and most are in service jobs (eg some may be getting tips that are not counted) and this is true of most under the poverty line as well; household survey show that most under the poverty line actually have cable tv and other luxuries, presumably because they have other sources of income or wealth that allow them to purchase such things.

http://stats.bls.gov/cps/mi...

We also know from longitudinal studies that most people in the bottom quintile quickly move out of it and so long as the definition of mobility does not allow economists to dismiss the findings, almost nobody remains below the poverty line for long.

http://www.urban.org/public...

http://www.dallasfed.org/fe...

Re: Please Do Your Job

liberty — Fri, 27 Jan 2006 11:35:06 -0000

No reporter is ever good when it comes to economics.

The point that it isn't the same people in the income quintiles between 1980 and today is a very important one. If the bottom quintile is doing the same today as then, while the top quintile is much better off, then one analysis might say that there is a larger gap, but in truth it just means that today wages of the least productive remain the same, while the more productive members of society are better off. If the people in the bottom quintile are primarily students, immigrants and young workers (which they are) then this should not be a disturbing statistic.

Economic mobility does need to have increased recently (it can even have slightly decreased) for this to be true - so long as most people in the bottom quintile are able to work their way out.

Many studies of economic mobility also use a strange definition. They define economic mobility as those movements which occur not because of age and experience but because of some ephemeral notion of social mobility; so that the quintile one starts out in at youth is noted and then when you are 45 years old and have moved up three quin tiles your income is compared only against other 45 year olds - so though you may be in the 4th quintile not the first in society, if all other 45 year olds are also rich and many richer, you are considered to still be in the bottom quintile for the purposes of the economic mobility study. So the American Dream itself of working your way out of poverty is ignored and we are told that economic mobility is falling in the United States (and the Americna Dream is dead) and mobility can not be used to "justify" income inequality.

Re: Please Do Your Job

Econ-in-AK — Fri, 27 Jan 2006 11:22:08 -0000

Dr. Roberts makes a good point about this not being a longitudinal study. I'm not sure I like using household numbers for these types of analysis. The disparity between 2 earner and 1 earner households is too great.

Also, inequality might be a bad word. I'd prefer distribution. That's really what we're talking about here - income distribution.

The data is available to compute gini coefficients or even good 'ol Standard Deviations of individual incomes for each state. In most states they can compute those stats for specific counties/regions. Each state collects UI wage records for all wage/salary workers. It's not perfect, but it encompass the majority of earnings for the majority of people. It's also possible to get these same stats for a longitudinal study, but nationwide demographic data isn't very good from what I understand. Here in Alaska we're lucky to have secondary sources we can match too, in order to pin down age, gender, and place of residence.

I think the true disparity in cost of living is becoming much greater today than it was 10 years ago. Therefore, the 'poor' quintile has much great purhasing power if they live in a more affordable region. Making $80,000 a year in New York doesn't make you rich at all. Move to rural Minnesota though, and you'd be doing pretty well.

Unfortunately, people their analysis to be summed up with cliches like, "the rich are getting richer and the poor are getting poorer." Russel is correct in claiming that this study doesn't confirm that. Only a longitudinal study could do that. The sad fact is the data exists, it just has to be employed the correct way. As usual, the devil is in the details (or methodology, if you will).