Saturday, November 21, 2015

The Single Family Income

Joel said something that seemed to me to be so disturbingly flawed back G2A Balancing Freedoms that I thought it was worth making its own post.
"I found this statement by Bernie disturbing. "It is not a radical idea to say that a single mom should be earning enough money to take care of her kids." The idea that he wants to set the target as one income per household is very sad. The reality is that it took 2 adults to make the baby(ies) and there should be 2 Parents to raise the child." G2A

""The idea that he wants to set the target as one income per household is very sad."  This is nonsense. It USED to be that families lived quite well off of one income...and the families were larger then. And with the cost of child care these days, it's hardly a benefit most times for both parents to be working.
If income had kept up with inflation, we wouldn't even be talking about this, but Corporate America has colluded with the Government to keep their taxes down while suppressing wages at the same time their employees have become more productive. "Joel
"Let me say this-- you know, no public policy doesn't have in some cases negative consequences. But at the end of the day what you have right now are millions of Americans working two or three jobs because that wages that they are earning are just too low. Real inflation accounted for wages has declined precipitously over the years. So I believe that in fact this country needs to move toward a living wage.

It is not a radical idea to say that if somebody works 40 hours a week that person should not be living in poverty. It is not a radical idea to say that a single mom should be earning enough money to take care of her kids. So I believe that over the next few years, not tomorrow, that over the next few years we have got to move the minimum wage to a living wage $15.00 bucks an hour. And I apologize to nobody." Bernie Sanders
 This statement probably frustrates me the most. "It USED to be that families lived quite well off of one income..."  I would love to see a source for this malarky. Here are my thoughts in no particular order:

  • Most of the houses in Robbinsdale / Minneapolis tell the story. 2 or 3 bedroom, 1 bathroom and maybe a detached garage if you were lucky.
  • If you were lucky you had a black and white TV, one car and a phone that may have been on a party line.
  • The spouse who stayed home had pretty much a full time job taking care of the kids, volunteering in the community, maybe tending a garden, cooking and cleaning. Remember that our high tech high cost labor saving appliances were not available. (not even a microwave oven...) And their was a lot less use of pre-packaged foods.
  • And if you lived out in rural America, it was likely that that garden was actually a small field and you got really good at canning, storing food in a cellar, etc
  •  Just like today, to make a household work it was important to have 2 parents at home sharing the responsibilities. (Sorry for the source, it is hard to find all the graphs I wanted in one place)
So let's compare this to today:
  • Crazy folks like Bernie seem to think that it is good to encourage and reward single parent households.  Even though evidence clearly shows this not the case for the kids.
  • People seem to need more to be happy. Be it the size of their home, the model of their phone, the type of job they have, the distance to their vacation place, the perfect spouse, etc.
  • People seem to be fine with having other people raise THEIR children, as long as they can have the things noted above.
  • Median wages adjusted for inflation have apparently been pretty flat.
Now Joel would have us believe that folks are far worse of than they used to be, even though we are spending a huge amount more on government mandated wealth transfer than ever before.  And he thinks it is Corporate America and the Government that has kept incomes down, even though we know that it is the consumers who choose to shop at Walmart rather than their local Mom and Pop store.  And we know it is the consumer who chooses to buy cars that are designed and built in lower cost countries.

Thoughts?

36 comments:

Anonymous said...

Well, tax policy has got to encourage and reward somebody and folks who are otherwise struggling to pay the bills seem like a pretty good choice to me. Why reward people with lower taxes who are also rewarded by so much else in life?

--Hiram

jerrye92002 said...

So much misinformation and misconception....

Government and big business colluding? Ha! If they have, it certainly hasn't been on wages and in fact government has done everything possible to make wages go up (to the detriment of our economy). Protection of the unions, in particular, has caused wages to go up WITHOUT increases in productivity to justify them, and paying the unions more than they are worth decreases the capital investment that would improve productivity. The only way to get it is to move the jobs offshore.

It IS a radical idea to say that someone working 40 hours per week should not be living in poverty, but not in the sense Bernie means it. It is a radical idea because in our not-distant past the VALUES we all held would have prevented it from occurring. We lived in modest, two-parent homes and sent our kids to good schools, so they could live better than we did.

John said...

Hiram,
See Page 8 thru 14

Now I know this is somewhat lacking because it seems focused on US Federal taxes, however our tax policies are there to help the lower income folks. Folks like Joel and yourself just want to make them even more progressive.

Sean said...

"Protection of the unions, in particular, has caused wages to go up WITHOUT increases in productivity to justify them"

For the last four decades, increases in productivity have far outpaced increases in wages. The difference is that more is being retained as profit and more -- for many reasons -- is accumulating in the hands of the wealthiest instead of going to workers.

jerrye92002 said...

Sean, I would like to see real numbers on that. Yes, productivity has risen, but has it been enough to JUSTIFY those higher wages? Keeping profits the same isn't giving the investors their share of the productivity increases they created. But worse, during times of slow economic growth, those whose income comes from capital do better than those whose income comes from wages, increasing inequality. I don't know why corporations get all the blame, when it is government taxation and regulation that creates the business climate (unfortunately).

Laurie said...

I believe your link shows that we are on track to be spending about the same amt for "government mandated wealth transfer" (2.4 % of GDP in 2020) as we did in the early 60's.

My link shows welfare spending is way down:

Chart Book: TANF at 19

I believe I have provided this information in your comments section several times but for some reason it never sticks.

John said...

Sean,
If a company installs automation, introduces new computer systems, etc and these improvements double output, should the company pay each employee more? Even if there are millions of people who are available and willing to work for less?



jerrye92002 said...

Thanks for that link, Laurie. It makes a lot of sense to say that TANF was a "success" for 4 of its 19 years, and since then has been failing. The "success" was that many people left the welfare rolls rather than sign up for work or training. The "failure" was that those remaining did not yet continued to get benefits, while inflation cuts their /apparent/ income. This "failure" actually started with AFDC, 80 years ago, and got a lot worse when the "War on Poverty" began in the 60s.

But I dispute that 2.4% figure. True, TANF may be only that big, but it is only one of dozens of federal programs for "eliminating poverty." Right now, the federal government spends almost $1Trillion per year-- 7% of GDP-- on "means tested programs." There is simply no way to eliminate poverty by throwing Other People's Money at it. You get more of what you pay for, and we pay for a LOT of poverty. I know there are a number-- my guess 20-25%-- of current recipients who are essentially unemployable. But if we would push on the other 75%, our national economy would be better, with more people working.

jerrye92002 said...

PMFBI, but YES, the company should pay workers more because each one will be working more efficiently-- output per worker-- AND the level of employee required will be higher and worth more in the job marketplace. These are the "better" jobs that CAN'T be exported, and that's what we want.

John said...

Laurie,
You are picking ONE welfare program out of hundreds. Where as Charts 2.63 and 2.66 show the big picture. (ie Local, State & Federal Programs)

1960: 1.6% + 1.0% = 2.6% of GDP
2015: 2.3% + 4.2% = 6.5% of GDP

Also, please note that the piece you linked to only shows one graph back to 1979 when AFDC goes back to 1935. I am assuming the author preferred to show the recent reductions, and not how much higher it is now as compared to in the 1960's.

John said...

Jerry,
You are correct that the welding robot repair person and programmer will be, and are paid more since they need to be relatively highly skilled personnel. That does little to help the 100 "near high school drop outs" who used to weld or put bolts in, and were paid well for it.

If lucky, they get transferred to driving a fork lift and loading supplies into the robots.

The unfortunate reality for the low academic / low skill employees is that they are competing head to head with similar workers all over the world. And they had better step up their game or get used to being paid poorly. The consumers of the USA are not going to willing pay more for product and services just so other Americans can be paid more than required.

Even folks like me will continue to get squeezed as China / India and other countries become increasingly technically proficient. There are at least 6 Chinese auto manufactures that you have never heard of. If they come here with a car that is good and costs 20% less than the other competitors, what do you think our consumers will do? Remember that Hyundai had almost no US market share a while back.

Here they come. This vehicle was my taxi in Shenyang.

John said...

A bit more info. It looks like they are aiming for bigger margins and lower sales growth for now.
BYD E6
BYD E6

jerrye92002 said...

John, you are almost correct but you are suggesting, somehow, that corporations or unions are creating this problem, when all that is happening is the assertion of the basic laws of economics, by definition.
-Wealth is the ability to provide goods and services to people.
-Wealth is only produced by people working.
-Capital is accumulated wealth (knowledge, capital equipment, infrastructure, human capital (education), etc.)
-Wealth produced per unit of work is multiplied by capital (There's a reason Ben Franklin didn't invent the supercomputer, or da Vinci the Apollo rocket.)
-Increased productivity drives wages up, employment down, and standard of living up.

We've had the discussion about massive unemployment as robots take over, but this is a different aspect of the problem. Presumably, if the economy grows properly, everybody can continue to work in jobs robots can't do. The more critical problem, right now, is that the United States government seems to do everything it can to penalize the capitalism that made the country an economic powerhouse, and disadvantages us over the rest of the world.

John said...

Please expand on this vague statement.

"United States government seems to do everything it can to penalize the capitalism that made the country an economic powerhouse, and disadvantages us over the rest of the world."

I think your definition of wealth is flawed. A simpler definition is "How much of something do you own/control that people are willing to pay for?"

I think your definition missed the importance of VALUE.

jerrye92002 said...

The US government has high corporate tax rates, taxes on capital investment, taxes on labor, double taxation of dividends, onerous environmental, labor, legal, contractual and financial regulations. Taken together, they reduce profits, capital investment, and productivity.

The only thing you really "own" is your labor. Everything else you have acquired has been in exchange for your labor, or given to you from the accumulated labor (capital) of another. Not sure what part of the definition is your quibble. The "ability to do for people" is pretty straightforward. What other purpose does wealth serve? You can't eat it. And that wealth is the product of work is also definitional. How else are goods and services provided?

John said...

I can't disagree that we do pay a lot of taxes. However companies are apparently less than ever. less than they used to.

This is an interesting Atlantic piece from before the taxes were raised on the rich even further.

As for too much regulation... This may be the case, however the regulations were usually created after some individual or company did something that was either very crooked or very selfish. (ie dumping waste into public space, undertaking questionable business practices (ie enron led to SOX), etc)

It is amazing how many lawyers, human resources, finance and accounting a company needs to have in America... And yet still questionable business personnel find creative ways to screw suckers.

John said...

"Increased productivity drives wages up, employment down, and standard of living up."

Was this supposed to be "unemployment down"?

jerrye92002 said...

No, when productivity rises, one of two things happens: The same amount of product is produced at lower cost by fewer people (employment down), or MORE product is produced at lower cost, by the same number of people, at higher wages, resulting in economic and standard of living growth. Usually there's a mix of the two.

The problem with government regulation is that it has a terrible cost-benefit. Not sure what the latest numbers are, but supposedly the cost of regulation is somewhere near $2TRILLION every year. And what is the benefit? Sure, we may prevent some company from "screwing suckers," but what responsibility do consumers have to avoid them? What's wrong with the screwees taking the screwers to civil or even criminal court, and leaving the 98% of other businesses alone? And what regulation can government write that will prevent "creative" people from finding a loophole or even exploiting the regulation for misbegotten gain?

FYI, the US has seven times the lawyers per capita as Japan. Necessary? I think not.

John said...

"The same amount of product is produced at lower cost by fewer people (employment down)"

What exactly are the eliminated people supposed to do? (ie deliver pizzas?)

"or MORE product is produced at lower cost, by the same number of people, at higher wages, resulting in economic and standard of living growth."

Why would a business owner increase wages just because productivity has increased if there are plenty of workers willing to work for the lower wage?

My point is that productivity has little to do with what employees are paid. They are paid based on what their worth is relative to other available employees. If a technology is put in place that makes all the employees more productive, their average pay will not shift much. And those who can not learn the new tech will actually become worth less.

jerrye92002 said...

"deliver pizzas?"

If that is all you are qualified to do, yes. If you allow yourself to become technologically obsolete and otherwise unemployable, that's on YOU. Again, we've talked about how rapidly the transition to fewer total jobs may radically transform global society, but that's a different issue. Interestingly enough, as robots take over manufacturing jobs, which CAN be exported, more people take service jobs, which are more difficult to outsource overseas OR automate.

"My point is that productivity has little to do with what employees are paid."

I disagree. It is the low-skill worker that is eliminated by productivity-enhancing capital equipment and automation. Those operating this equipment have higher skill levels and can command premium wages in their limited labor pool. Companies won't WILLINGLY pay higher wages; they will be forced to, to compete for employees.

John said...

The wages for the people with Technical knowledge / skills are great... They are not the concern.

What to to do with all those who do not have Technical knowledge / skills is the problem?

If an economy changes so 20% of the jobs increase in value by 50%, and 80% of the jobs decrease in value by 50%... You have what we are experiencing today. Growing wealth inequity.

Technical experts like me are making 6 figures and a large number of our citizens are working at stores making $12/hr. (~$24,000).

jerrye92002 said...

Again, how is that my problem, or the problem of employers? Or, for that matter, something that government can effect positively through regulation? If government quit putting all kinds of obstacles in the way of the economy, we wouldn't be having these "problems." Carly Fiorina is right. Government creates a problem, then steps in to solve the problem they created, thus creating more problems.

Laurie said...

I think very few people working at stores are making $12 an hour.

John said...

Retail Sales 2012

I assume bigger cities are more and smaller cities are less.

John said...

Jerry,
My point is that your law is wrong in this case.

"Increased productivity drives wages up, employment down, and standard of living up."

In this case...
"Increased productivity/automation and an excessive amount of low cost labor, drives wages, employment and the standard of living up for the most qualified employees/citizens. And drives wages, employment and the standard of living down for most citizens."

Anonymous said...

When every worker is highly skilled and deserving of a high paid job, who will deliver the pizzas?

Joel

John said...

When there is a shortage of Pizza Delivery applicants and if people still value pizza delivery. Then the wages and tips will increase. A wonderful system. :-)

jerrye92002 said...

"Increased productivity/automation and an excessive amount of low cost labor, drives wages, employment and the standard of living up for the most qualified employees/citizens. And drives wages, employment and the standard of living down for most citizens." -- John

You are looking at this in a micro sense, rather than the macro sense. First of all, I didn't say a thing about "excessive... low cost labor." All you are talking about is the natural competition for jobs where productivity improvement permits wage increases for the higher-skilled labor, in order to compete with lower-paid, lower-skilled labor. Do I have to tell the story again about why my company closed the operation in the Phillipines paying 5 cents/hour, and brought production back to the US to pay $20/hour?

When anything, because of productivity gains, becomes less costly, the standard of living goes up, and the economy "grows" because more people buy an HDtv, or whatever. This growing economy in turn drives the need for more products or services which, in the aggregate, are jobs filled from those whose jobs were "lost" to productivity increases. Or there are more jobs in expansion of the factory producing goods at a lower cost. Look at our history. Anybody unemployed because you now wear on your wrist, at a tiny fraction of the cost, a machine with greater power than a 1965 supercomputer?

Anonymous said...

"When there is a shortage of Pizza Delivery applicants and if people still value pizza delivery. Then the wages and tips will increase. A wonderful system. :-)"

And how expensive will the pizza have to be in order to pay these employees? And who is going to buy this expensive pizza?

Joel

John said...

"When every worker is highly skilled and deserving of a high paid job"

The people will be able to afford it...

John said...

Joel,
Your support for much higher minimum wages is the same thing, except it is like trying to push a rope instead of pulling it.

By forcing the pizza guy's wages higher via a higher minimum wage, you will drive up the costs for pizza. Unfortunately most people (ie those earning more than minimum wage) will not see their pay check increase to help pay the new cost.

Jerry,
It seems to me that you are the one looking at it in the micro sense and "spouting the Conservative line"... The reality is that the productivity gains / off shoring of work has stopped wage growth for low skill low academic US citizens.

Unfortunately your 5 cent / $20 "war story" is the exception not the rule.

Anonymous said...

"The people will be able to afford it..."

But the value of a pizza won't match the cost of a pizza.

Joel

John said...

Please explain that belief, it has me puzzled.

jerrye92002 said...

"It seems to me that you are the one looking at it in the micro sense and 'spouting the Conservative line'"

Sorry, but calling my argument "conservative" doesn't tell me anything except that you disagree. It's only a proper shorthand if the rest of us understand WHY you are disparaging/dismissing my points. I think I'm looking at it in the sense of the macro economy. That is, just because somebody loses their job to productivity increases doesn't mean every body loses the job. More likely that person finds another job in the expanding economy and shares in the improved standard of living that results. "A rising tide lifts all boats." -- JFK

"The reality is that the productivity gains / off shoring of work has stopped wage growth for low skill low academic US citizens."

Exactly right. The free market in labor works, these days, almost without regard to national borders, and so under-qualified and overpaid US workers are going to suffer unless they can educate themselves and become qualified for the higher-paying, higher-productivity jobs.

"Unfortunately your 5 cent / $20 "war story" is the exception not the rule. "

Perhaps not as exceptional as you think, but to the degree it is, the fault lies, again, with government making it difficult to use capital investment as the means of increasing productivity and overcoming this huge wage discrepancy.

I go back to my original response to this post, which asked, I believe "why should someone working 40 hours per week be living in poverty" to which my response is "not because she is working 40 hours per week." Any and all attempts by government to remedy this situation from outside is doomed to make matters worse, not better.

John said...

I think the Earned Income Tax Credit and subsidized health care premiums may help resolve some of the problem.

It seems to take some money from those who benefit the most from globalization / free trade and give it to the workers who are hurt by globalization / free trade.

Whereas an increased minimum wage would tax everyone, and hurt the low income folks the most.

jerrye92002 said...

I would agree. Both approaches are getting government "out of the way" of individual effort. I would prefer "negative income tax" to the EITC because it's even less restrictive of what the individual must do, and actually increases incentives for productive behavior. Either one is vastly preferable to 65 overlapping, redundant, complex and ineffective subsidies of poverty that is our current welfare system. Converting all health care-- Medicare, Medicaid, Obamacare-- to "premium support" would be an even bigger economic boon. It would allow true competition in health care and radically alter the current "model," reducing costs by as much as half and therefore covering more people, with better care.

I would disagree with "taking money away from those..." because I think everybody benefits from free trade. It's just that some are unprepared or unable (do we want to bring public education, high taxes and government over-regulation into this again?) to take advantage of the opportunities presented by such.