Median Wages

Ending voodoo economics will be a very tough battle, in spite of the UAW's amazing ability to convince Harry Reid not to bow to the extreme demands of Republicans to cut UAW wages in the near term. (Had the Repubs not been so thoroughly greedy, the concessions that the UAW had agreed to would have just made matters worse).

I didn't see any news today in the US about Goldman, Sachs bonuses in the face of their reported losses, but in the UK, the online Daily Mail reports that Goldman, Sachs will cut its bonuses to a MERE $6+ billion, or an average of $200,000 per employee (at current exchange rates).

Can the UAW retrain its laid off workers to be brokers and investment bankers?

Stronger immigration controls.

Kevin: I'm really surprised to read these words in a post by you. I know you're no xenophobe, but what exactly did you have in mind? You do realize that the last time median wages were rising (the 1990s) immigration was likewise booming, don't you? Everything I've seen suggests total numbers (ie., including illegals) have trended down during the Bush years (when median income growth ceased).

Brilliant.

Let me just add a tough-as-nails estate tax to your list of policy prescriptions.

The incentive to get absurdly rich at everyone else's expense will be considerably reduced if it's near-impossible to start dynasties.

It seems as if our "policies" on everything, from taxes to health care, education to global warming, financial regulation to defense, housing to immigration, have been revealed, all at once, to be unsustainable. Which to attempt to fix first?

Until median wages start rising steadily and consistently, we haven't gotten ourselves back on track.

I don't disagree with that. But given how much debt Americans have piled up, and that there is global overcapacity for nearly every manufactured good, rising real wages will be a long time coming.

Krugman: "a return to normalcy would involve getting savings up... ."

Drum: "there's really no way for the economy to grow.. unless middle-class consumers spend more"

Say what?

One of the weird ironies of our economic times is that the people most likely to save ( the rich) have gotten far more income, yet one of our big problems is a lack of savings. Help me out on this. Should I be saving or consuming.

Aren't median disposable incomes the real bottom line? Providing universal healthcare (a huge expense, averaging $12,000/family/year, for the average family making Aren't median disposable incomes the real bottom line? Providing universal healthcare (a huge expense, averaging $12,000/family/year, for the average family making <$60K) as well as reducing payroll taxes on the first $10-60K of income could result in huge increases in disposable income at the bottom. These could be paid for with taxes on carbon and the wealthy

Kevin Drum: Stronger immigration controls.

Jasper: I'm really surprised to read these words in a post by you.

I too was wondering if Kevin's twin had grabbed hold of the keyboard. Then again erstwhile free trader Krugman was talking about the trade deficit and how it fed the housing bubble, so perhaps this is the season for re-examination.

You do realize that the last time median wages were rising (the 1990s) immigration was likewise booming, don't you?

The fact that these things coincided doesn't demonstrate that increased (legal and illegal) immigration caused median wages to rise, and in fact doesn't even demonstrate that it didn't have a countervailing effect.

Everything I've seen suggests total numbers (ie., including illegals) have trended down during the Bush years (when median income growth ceased).

Again, you may have cause and effect backwards. It's more reasonable that increasing wages would cause greater (legal and illegal) immigration, than the other way around. Supply and demand suggests that, if anything, immigration would have a countervailing effect on wages.

The reality is that (legal and illegal) immigration does have an effect on wages. What that effect is depends on the pattern of immigration. If the skills of new immigrants reflected the skills of Americans (shorthand for anyone who is already living here) then the distributional effects would be minimal. However immigration patterns, as shaped by de facto immigration policy, has been quite different. Illegal aliens generally have low paid skills, and hence drive down the wages of people who are already low paid.

Not as tragically, but still a source of legitimate complaint, is the emphasis on STEM (scientific, technical, engineering, mathematical) immigrants and guest workers (e.g. H-1B's). The increased quotas and guest worker programs (H-1B) for people with these skills is based on shortage claims by industry and academia. It is _not_ backed by any objective data demonstrating shortages. The objective data isn't hard to look for either - in a market based system the first sign of a "shortage" is rising wages.

By contrast Australia has a system whereby objective data is used to determine which skills are actually in short supply, and immigration preferences are adjusted accordingly.

Alternatively (and the best approach to a more egalitarian society) immigration criteria could give preference to the people with the highest paid skills. Dean Baker has written extensively on this. Unsurprisingly though people with the highest paid skills seem to have the best protection rackets going.

Kevin Drum writes:

"How do we make this happen, though? I'm not sure. Stronger unions are a part of it. Maybe a higher minimum wage. Stronger immigration controls."

Congratulations. Welcome to the reality-based community.

I would focus on cost reduction rather than income growth. 50 mpg cars, zero energy homes, healtcare costs reduced by a third as a result of prevention, IT, lower adm costs, smart growth reducing infrastructure costs and the need for a second car etc etc can enhance standards of living without having to achieve - at least in the shortrun - the almost impossible goal
of raising incomes in a world of outsourcing and wages racing to the bottom due to a world labor market

If it's hard to make middle class wages go up, you can target them with additional tax cuts. That gives the middle class more disposable income, a la Ben above.

How about this? Combine traditional and Roth IRAs. In other words, let middle class taxpayers deduct their yearly contribution to their Roth IRAs. Voila! You get a tax cut targeted where it does the most good, increased incentive for saving, and increased disposable income for savers.

As a society we should move away from equating "higher GDP number" with prosperity. Focus more on ensuring that everyone's basic needs are met. That means providing basic universal healthcare, with emphasis on preventive care. Also match homeless people with people less homes, as a Florida group has started doing recently (heard this on NPR).

We should focus on people and count prosperity based on how effectively we are able to handle basic human needs. Counting prosperity as "GDP growth" is meaningless, yet so much is focused on somehow printing a better GDP number every quarter, assuming that equates to progress in the human condition. That misguided focus is why we focused so much on creating one bubble after the other in a vain attempt to print better GDP numbers.

Limiting immigration reduces economic growth, stifles it and can even kill it. Using minimum wages to reduce the effect of immigrant labor is a better way to protect unskilled labor wages.

I recently read a columnist who pointed out that deep recessions and depressions tend to strengthen unions. He said the unions in the US grew strongly in the 1929-3x depression period. Makes sense to me; workers need to be organized to stand up against the capitalists who are not only well organized, but also practically run the country.

I'll second what Wapiti, GA-Sen Watcher, and several others upthread mention: a substantial rise in the marginal income tax rates.

The progressive tax system was an inspired thing, and to this day I'm disgusted with how it was effectively gutted during the Reagan years (and then even worse by Bush II).

When Reagan came in, he and other Movement Conservatives made much about how complicated the federal income tax system was. They promised to "simplify" it. Unfortunately, they found a public receptive to this argument. The thing is, what most people thought was complex were the pages and pages of tables that filled up every annual set of instructions for the 1040. What the public didn't much realize was that those tables were the heart-and-soul of the progressive income tax system: the only part of the tax code that was fundamentally on THEIR side.

Reagan "simplified" the code by substantially gutting those tables out (he and the GOP would have eliminated them entirely -- would have given us a complete flat tax -- but for Democratic opposition. As it was they came far too close).

But let me tell you, it was all smoke and mirrors. As a licensed Oregon tax preparer, I can assure you that the tax code did not in reality get meaningfully simpler then or any time since. All the REAL complexities remain, and indeed have been generously increased. Those complexities, or course, are the heaps and piles of rules used by the wealthy (and, more than that, corporate America) to avoid paying even what the remaining marginal tax tables might demand. The GOP never wanted to carve away any of THOSE complexities!

Reagan's promise to simplify the tax system was deeply appealing to the public because, during my lifetime at least, NO ONE ever much bothered to explain to the public generally why the progressive tax system is a good thing. Liberals, the Democratic Party, the educational system ... everyone who should have said something were silent. I myself had no meaningful clue of what the progressive income tax system was all about until I finally came across detailed argument about it in my college history texts.

(This is really just a small example of a larger problem in the past, that of liberals consistently failing to TEACH liberalism. Conservatives, of course, never miss an opportunity to inculcate their worldview on young people and to the public at large. But liberals -- at least until recently -- seemed to think that the mere example of our rationalism was sufficient to turn the public at large into liberals. So year after year I saw millions raised and spent on elections, but almost nothing ever spent to actually help lay the intellectual foundation in the public realm to JUSTIFY liberal policies and, thus, help elect liberals year after year. Bah!).

My point is that we might be able to restore a progressive quality to the income tax, now that we have the White House and Congress (and a shiny economic crisis looming over us). But if we want it or any other reforms and changes we implement to survive any length of time we must get into the habit of advocating for these things, each and every day and year, endlessly into the future no matter how the political tides flow.

And why do I think it so important? I believe the progressive income tax was the single most significant factor in what Paul Krugman and others have referred to as the "Great Compression," the period of vastly increased equality spanning the mid-1930s through about 1973. That was a time when the CEOs of most Fortune 500 companies earned 30-40x what new hires earned, not the 300-400x they get now. And while I've seen all sort of tortured explanations about why CEOs nowadays have managed to push their salaries into the stratosphere, the answer to me seems so obvious: when you KNOW that you'll instantly have to fork over more than 95% of that excess salary in federal, state and local income taxes, there doesn't seem much point to getting paid that much in the first place. We've already seen in our own history that such tax rates -- however much resented by top executives -- don't actually drive top executives into early retirement (Unless, of course, you think American management wasn't any good back in the 1940s, '50s and '60s). And we've seen the great good they can do.

By the way, I just finished reading "The Conscience of a Liberal," by Krugman, and he addresses all the issues raised in this threat quite well. I recommend it to anyone who finds the general topic of this post particularly interesting.

I'm not any kinf of an economist, so t I freely admit that their are probably many obvious objections, but I've long had the idea that the marginal rates of a progressive tax scheme should be set not at dollar amounts, but at percentile of one's income. In this way, it is more easily understandable for people when we debate changes in taxation just who is being taxed, and how far or low up the ladder they themselves actually are. Of course, the EIC could be made a part of this as well, which would perhaps be more blatant redistribution, but that's my ideal anyway.

You could put a huge amount of disposable income into the hands of people likely to spend it by massively forgiving student loans.

Or, we could start a program to forgive student loans in return for community-based service jobs like police work, social work, and teaching. There is already a program to help forgive federal student loans for teachers, but almost everyone from my generation (BSIE '04) was suckered into consolidation loans and are now ineligible for loan forgiveness. Open the program to these people and you will encourage more qualified people to spend some time in public service while also allowing them to stretch their meager incomes a little farther, increasing reinvestment.

Good point!

In the 70's the inflation in home prices was accompanied by an increase in salaries. When the recession came, most people were able to hold on to their homes and make it through in part because of their increased income.

Roger Keeling at 2:58 addresses an issue I'd like to see discussed even further. And that is tax policy and how it shapes spending and investing behavior, both personal and corporate.

I, too, am no economist, but it appears to me that the lowering of the corporate tax rate over the last 30 years has created a disincentive for reinvestment in Corporate America. It's, consequently, become quite lucrative to engage in profit-taking at the corporate level when the tax ramifications no longer are a barrier for doing so. And, as we've seen recently, this oftentimes comes at the cost to the viability of the company since the fat cats have extracted theirs.

However, personal tax rates should be the "sacred cow" and respected for the detrimental effect raising such would have on the average American taxpayer.

Just the Average Jane's thoughts, being a small business owner myself and possessing at least an entry-level understanding of tax-and-spending implications.

Pauline

Median Wages-The only message I am getting from both the incoming President and the current administration is that we must worship a free market economy and reduce our Middle Class wages to the point where we can compete with the lowest wages in the world. The result of this Free Market concept is to watch the U.S. Manufacturing Base leave the Country as it has for years in search of minimum wages and max profits and not make these firms pay any tariffs when they sell in our markets-this ,of course, means more U.S. Manufacturing jobs leave the Country and the cycle continues. A better approach would be to withdraw from the WTO and NAFTA and set up a system that protects the American Worker, penalizes firms that leave the Country, and stops our Nation from supporting every economy in the world but our own. Not to mention closing our borders to drugs and illegal immigrants that are also being used to bring down U.S. wages!

Kevin wrote: "... rich people are going to have to accept the fact that they don't get all the money anymore. Their incomes will still grow, but no faster than anyone else's."

Rich people "have to accept"?

And you and what revolutionary army are going to make them?

"Rich people" run this country. Not you. Not me. Not the "middle class". And not Barack Obama.

During the 1990s, with the more progressive tax rates of the Clinton administration, the after-tax income of the ultra-rich rose more, and rose faster, than that of any other sector.

But that wasn't enough for them. They didn't want most of the wealth and power of the country -- they wanted it all.

And so, there was a two-year long corporate media "war on Gore", and two years of the corporate media pimping for the fake, phony "compassionate conservative" Bush, which succeeded in getting Bush close enough to steal the election with voter disenfranchisement and fraud.

And for eight years we have toiled under the jackboot of government of, by and for America's Ultra-Rich Ruling Class, Inc. (a.k.a. "the top one percent", a.k.a. "Bush's base") while a kleptocratic, authoritarian regime of career white collar crooks has looted and plundered the nation to enrich and empower the ultra-rich at the expense of, and to the detriment of, everyone else.

Now the same corporate-owned, so-called "mainstream" mass media that worked in close coordination with the openly partisan Republican right-wing extremist corporate-owned media to destroy Al Gore is preemptively attacking president-elect Obama with the same fake, phony allegations of trumped-up "scandal" that they used to undermine Clinton and then Gore.

The ultra-rich are not going to give an inch without a fight. And if you think they are going to "have to accept" spreading the wealth around, at the cost of returning their tax rates to what they were under Clinton, you are dreaming.

What you are going to see instead is "disaster capitalism" on a grand scale, and an intensification of the ongoing, relentless, ruthless, rapacious class warfare of the ultra-rich corporate oligarchy against everyone else.

"The Great Depression was worsened by the law that drastically raised tariffs on imported goods, the Smoot-Hawley Act"

The lesson of Smoot-Hawley is don't start a trade war when you have a huge trade surplus. You will note that this condition doesn't apply today. Our current trade deficit is almost 7% of GDP, and subtracts directly from US GDP. How much money would be available for wages if we didn't leak away 7% of GDP year after year? Solving the wage issue is going to involve solving the trade issue.

Even Krugman realizes this now.

Woops. There was more to the above. The anger came across nicely, though.

Downward pressure on wages? Meaning that recent graduates with $40,000 in student loan debt are reluctant to work for $7 an hour, twenty hours a week?

Yeah, I'll just bet. You're no goddammed different from the growers who can't figure out why their lettuce rots on the ground if they won't pay a living wage.

I've got one of those BAs in science you mentioned and a long, proven work history, and there's *nothing* I can take in academia unless I want to starve to death in the dark.

You scum. You lying scum. How dare you work in academia? How dare you expose college students to yourself?

Shame on you.

Thanks, Tripp.