The WSJ has opinions on non-rich folks again

Donald J. Boudreaux and Mark J. Perry at the Wall Street Journal would like you to know that the shrinking middle class is a mean and “spectacularly wrong” progressive trope; or rather, a “progressive” trope. Scare quotes are apparently necessary (link). Wanna have a look at their arguments?

First, the CPI overestimates inflation by underestimating the value of improvements in product quality and variety.

The what now? Variety I can understand, because increased variations on the same crap are how this consumer economy works. But how is making Planned Obsolescence into a basic production model, and how is lowering quality of products so they can be sold at a profit at Walmart an “improvement in quality”?

Would you prefer 1980 medical care at 1980 prices, or 2013 care at 2013 prices? Most of us wouldn’t hesitate to choose the latter.

1980’s care I can pay for, vs. 2013 care I can’t? Yeah, let me think about that one.

Asides from that, it’s complete BS that the increase in costs has anything to do with the increase in quality, since the US does not in fact have the best healthcare in the world, yet has the most expensive healthcare in the world. Quite the contrary, the US is below average in many aspects of healthcare as compared to other OECD countries, while at the same time spending 2.5 times the OECD average on healthcare costs. And many of the procedures cost more than in other countries, as well:
table comparing costs of 7 common medical procedures in several European countries, Canada, Australia, and U.S. Prices in the U.S. are consistently highest

And lastly, it’s not actually relevant that current care is more technologically advanced. A middle-class by definition should be able to afford a middle-level of care, regardless of its level of advancement.

Second, this wage figure ignores the rise over the past few decades in the portion of worker pay taken as (nontaxable) fringe benefits. This is no small matter—health benefits, pensions, paid leave and the rest now amount to an average of almost 31% of total compensation for all civilian workers according to the BLS.

You mean the ridiculously more expensive healthcare makes up a larger chunk of a paycheck? Shocking. Also, pensions are rarely pensions anymore, they’re 401k, which just became nearly worthless during the world economic crisis, regardless of how much money people put into them.

Third and most important, the average hourly wage is held down by the great increase of women and immigrants into the workforce over the past three decades. Precisely because the U.S. economy was flexible and strong, it created millions of jobs for the influx of many often lesser-skilled workers who sought employment during these years.

You can tell this is ass-backwards bullshit by the part where women are unskilled workers (the impressive sexism of that aside for a moment). The reality is once again the opposite: jobs entered into by women have become de-skilled as they entered them.
Aside from that… when a job that used to be a highly trained union job, but is now classified as a low-skilled non-union job, that means fewer middle-class jobs. When these jobs disappear entirely, and are replaced by non-unionized, unskilled service industry jobs, that’s once again fewer middle-class jobs. It’s not the magical appearance of uneducated wimmins and furriners that is causing this shift of the US workforce. It’s the lack of affordable education, de-skilling, and de-unionizing of jobs that did that; and those jobs were then filled by people entering the workforce, including women and immigrants.
And on the note of “unskilled labor”… you know what an easy solution to that problem is? Providing training and education for said labor; another thing that’s increasingly hard to come by, because education is becoming more expensive, because apprenticeships for union-jobs are becoming scarce, and because ever higher levels of education are required for ever lower-skilled work.

Since almost all lesser-skilled workers entering the workforce in any given year are paid wages lower than the average, the measured statistic, “average hourly wage,” remained stagnant over the years—even while the real wages of actual flesh-and-blood workers employed in any given year rose over time as they gained more experience and skills.

apparently only people who’ve been in the middle-class in the 1980’s count. O.o
Dudes, having a larger proportion of people in poverty jobs by definition shrinks the Middle Class.

No single measure of well-being is more informative or important than life expectancy. Happily, an American born today can expect to live approximately 79 years—a full five years longer than in 1980 and more than a decade longer than in 1950.

which is also still below OECD average, by a whole year. It also rose slower than in other OECD countries, and slower than in the 40’s, 50’s, and 60’s. But once again, this doesn’t actually tell us shit about the Middle Class, since this is an U.S.-wide average. What might tell us something about the situation of the Middle Class is the fact that the life expectancy gap between the poor and the rich is growing; and unless we assume that the rich have gained enormously and/or poor people are dying much younger at much higher rates, the most likely explanation is a shifting of people out of the middle-ground. You know, a shrinking middle class.

According to the Bureau of Economic Analysis, spending by households on many of modern life’s “basics”—food at home, automobiles, clothing and footwear, household furnishings and equipment, and housing and utilities—fell from 53% of disposable income in 1950 to 44% in 1970 to 32% today.

I notice that housing, education, and healthcare are not listed.

while income inequality might be rising when measured in dollars, it is falling when reckoned in what’s most important—our ability to consume.

consumption is what’s most important?! *barf*

Despite assertions by progressives who complain about stagnant wages, inequality and the (always) disappearing middle class, middle-class Americans have more buying power than ever before.

Considering the ridiculous degrees of indebtedness of Americans, this is a horribly callous thing to say. And kind of wrong, since increased debt accounts for the increased consumerism; it’s not an indicator of Middle-Class-ness.

They […] have much greater access to the services and consumer products bought by billionaires.

like 1st class education, 1st class healthcare, protection from volatile energy prices and increased natural disasters? Oh, that’s not what you meant, is it. You meant gadgets. Oh well then: since both Bill Gates and a college student can afford an iPad, that must mean the Middle Class isn’t shrinking. WTF?

Incidentally, I looked at income distribution in the U.S. in 1980 and 2010. in 1980, median income was $44000; in 2010, it was $49000. The percentage of people living in neighborhoods between 80% and 125% of that median shrunk in that time from about 55% of the population to just over 40% of the population.

Looks to me like the middle segment of income earners in the U.S. shrunk. Huh.

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My Economics Textbook (part two)

Let’s start today’s post with the following quote(emphasis mine):

Some economists say that ghe distribution of annual consumption is more meaningful for examining inequality of well-being than is the distribution of annual income. In a given year, people’s consumption of goods and services may be above or below their income because they can save, draw down past savings, use credit cards, take out home mortgages, spend from inheritances, give money to charities, and so on. A recent study of the distribution of consumption finds that annual consumption inequality is less than income inequality. Moreover, consumption inequality has remained relatively constant over several decades, even though income inequality has increased.

after reading that, I had to go check when this book was originally published. I mean, we’ve just been through a massive economic crisis caused in part precisely by consumption being greater than income. And we’ll be spending a LOT of time recovering from it! At the end of that article is an even more stupid quote from The Economist:

More than 70 percent of Americans under the official poverty line own at least one car. And the distance between driving a used Hyundai Elantra and a new Jaguar XJ is well nigh undetectable compared to the difference between motoring and hiking through the muck. … A wide screen plasma television is lovely, but you do not need one to laugh at “Shrek”.
Those intrepid souls who make vast fortunes turning out ever higher-quality goods at ever lower prices widen the income gap while reducing the differences that really matter.

First, that must have been written by someone who has never driven a used anything; because my experience with old cars is that they have a very bad habit of breaking down when I need them to get to work most. And of course 70% of poor people have a car; there’s virtually no public transportation system, and living near jobs is unaffordable. In fact, virtually every application I’ve ever had to fill out asked whether I had “reliable transport”, which translates to “do you have a car that won’t break down” in most circumstances. And yet, 30% DON’T have a car, and when oil-prices spiked a few years back people had to quit their jobs because they couldn’t afford putting in enough gas to get to their jobs. To praise America’s car-dependence is some sort of perverse (and the same goes for the “even homeless people have cellphones” argument: of course they do, how else are they supposed to stop being homeless? cellphones have become a necessity for many of them), and so is the “reducing the differences that really matter” comment. The ability to watch TV is “what really matters”? The ability to drive a car is “what really matters”? Really!? And here I thought that would be affordable housing, nutrition, healthcare, and education. You know, the things more and more Americans are simply not able to afford. And I could write a rant about “higher-quality goods at lower prices”, too, since for the ACTUAL things that matter this is often not true. My ancient cast iron pans are worlds better than any newfangled teflon-coated piece of shit I could buy from Walmart and which will fall apart in a year or two. Electronics might be the only exception here.

Anyway, the entire chapter on inequality is like the quote, a longwinded attempt at pretending it’s not so bad. For example, they explain that the rising inequality since the 70’s was primarily caused by a sudden increase in the need for highly skilled workers in biotech, IT, etc instead of blue-collar workers. And then smoothly transitioning into explaining how this increased demand for skill explains the astronomic rise of CEO pay. Which, as far as I can tell, are actually two entirely separate things, but whatever. Also, I was under the impression that the demand for blue-collar work was replaced by a demand for service-industry jobs, which are mostly even less skilled and more importantly not unionized. That, combined with their claim that “incomes have risen in all quintiles, income growth has been fastest in the top quintile” (is that so? I was under the impression that the lowest quintiles were barely, if at all, keeping up with inflation, nevermind an actual rise in incomes) seems to indicate that they want to claim that rising inequality means that no one got poorer, but that plenty of people got richer. Which is pure and unadulterated bullshit.

And then they top this off with a beautiful tu quoque: “Second, increased income inequality is not solely a U.S. phenomenon. The recent rise of inequality has also occurred in several other industrially advanced nations”. Indeed it has. And? It’s still a bad thing. And “in several” implies that it didn’t increase in ALL of them. Did these other nations not have an increased need for IT, biotech etc. professionals? Do they have no need for highly skilled CEO’s and highly paid athletes and entertainers? Or is it maybe that these things alone don’t explain the rising inequality?

Then there’s a chapter on healthcare. In the beginning paragraph is this sentence: “Those with insurance or other financial means receive the world’s highest-quality medical treatment, but many people, because of their inability to pay, fail to seek out the most basic treatment.” While the second half of that sentence is correct, the first is only true for a subset of the insured. Plenty of people with insurance get shitty care, get denied treatments or payment for treatments, have their treatments delayed while the hospitals and the insurance fight over what is or isn’t covered, etc. And then there’s the fact that many insurance plans still don’t cover preventive care (The insurance plan for NDSU students for example only covers visits to the doctor when you’re sick).

Then they do some “international comparison”: they admit that “for whatever reason”, the U.S. has the highest spending, but at least, “there’s general agreement that medical care (although not health and not “preventive care treatment”) in the United States is probably the best in the world.” and what the bloody fuck does it mean to have the best medical care in the world if your preventive care and your health sucks? Anyway, then they list all these awesome things brought to you by the U.S. medical system. And they’re the very same things that the not-best-in-the-world systems in Europe have achieved as well, at much lower costs: rising life expectancy, “most advanced” equipment and technology, virtual elimination of polio, angioplasty, bypass surgeries, transplants, prosthetics, joint replacements, etc. The only point I’m willing to give them is that most of the medical research funding comes from the U.S.

And then comes the section that talks about the Moral Hazard Problem of health insurance. Now, I know that this is hypothetically relevant, but come on… “if their insurance covers rehabilitation programs, some people may be more inclined to experiment with alcohol or drugs”? Really? I’m thinking that belongs into the “hypotheticals I pulled out of my ass” category. Plus, they list people going to the doctor more often and requesting more test as a negative effect of health insurance.

In the chapter on Supply and Demand, we get the following essay:

Ticket prices for athletic events and musical concerts are usually set far in advance of the events. Sometimes the original price is too low to be the equilibrium price. Lines form at the ticket window and a severe shortage of tickets occurs at the printed price. What happens next? Buyers who are willing to may more than the original ticket price bid up the ticket price in resale ticket markets.
Tickets sometimes get resold for much greater amounts than the original price – market transactions known as “scalping”. For example, an original buer may resel a $75 ticket to a concert for $200, $250, or more. Reporters sometimes denounce scalpers for “ripping off” buyers by charging “exorbitant” prices.
But is scalping really a rip-off? We must first recognize that such ticket resales are voluntary transaction. If both buyer and seller did not expect to gain from the exchange, it would not occur! The seller must value the $200 more than seeing the event, and the buyer must value seeing the event at $200 or more. So there are no losers or victims here: Both buyer and seller benefit from the transaction. The scalping market simply redistributes assets (game or concert tickets) from those who would rather have the money (and the other things that the money can buy) to those who would rather have the tickets.
Does scalping impose losses or injury on the sponsors of the event? If the sponsors are injured, it is because they initially priced tickets below the equilibrium level. Perhaps they did this to create a long waiting line and the attendant news media publicity. Alternatively, they may have had a genuine desire to keep tickets affordable to lower-income, ardent fans. In either case, the event sponsors suffer an opportunity cost in the form of less ticket revenue than they might have otherwise received. But such losses are self-inflicted and separate and distinct from the fact that some tickets are later resold at a higher price.
So is ticket scalping undesirable? Not on economic grounds! It is an entirely voluntary activity that benefits both sellers and buyers.

Yes, this is a defense of scalpers. As an explanation of supply and demand, using scalping would have worked; but actually defending it? It doesn’t even work “on economic grounds”, since the scalpers don’t provide a service that wouldn’t be available to the buyers otherwise: the tickets they sell are not tickets that magically add capacity. Rather, scalpers remove tickets from the original supply-pool, and distribute them back to the pool of people wanting the tickets, to whom these tickets are now not available at the original price. They get something for nothing. (and what’s with the implication that scalpers sell “their” ticket? If it’s an event the scalper actually wants to attend, they will. Scalpers sell additional tickets, i.e. ones that have no value to them beyond the price they themselves paid for them).

And lastly, this is another instance of “assume robots”. Imagine for example that the sponsors of the Soccer World Cup decided to price their tickets at “equilibrium price”, which would mean the tickets would go for hundreds of thousands of dollars. The result would be worldwide riots, not a calm “oh well, I can’t afford it, I guess I’ll watch it on TV instead”. NO ONE wants that kind of publicity, especially since it would be likely to result in dead people.

And even in less drastic situations, you REALLY don’t want to price yourself out of theoretical range of too many of your fans. After all, very few sports teams and musical entertainers primarily earn money from their shows. Most of it comes from sales of merchandise and advertisement, with the live performances being more like the “free gift with purchase” enticement that mostly is just supposed to cover the costs of maintaining/renting the venue. With musical events, there’s of course some balance necessary between the need of the venue owners to make a profit and the performers to maintain mass appeal, but only venues that actually strive for a certain level of “elite” appeal would use high pricing to limit the number of people who will show up, in my experience. The entertainment business simply cannot be reduced to its economic components only.

In the same chapter you get another essay, this time proposing a legal market for human organs. Their main arguments for it are that people should be free to make any transaction they want, that this would increase the number of people who sell their bodies at death(!), and that not making it legal just means the trade goes on illegally.

Goddamn robots again. After all, the same argument could be used for selling oneself (or one’s children) into slavery. After all, that also happens on the black market already, it’s economically viable-ish, and will increase the availability of cheap human labor. It’s also still a really shitty idea once we remember that we’re talking about human beings, not robots and their spare parts. Besides, the claim that it would increase the number of people who give their bodies away after death is disingenuous, since it blatantly ignores that there’s already better ways to do that (opt-out instead of opt-in policies), and that no one gives a flying fuck about what people do with their dead bodies; it’s the sale of organs out of still perfectly alive bodies, which actually might still need those organs, that’s the problem.

Lastly, a possibly minor point is also the selectiveness on some of their graphs. For example, when showing examples of countries on the Index of Economic Freedom, they use Hong Kong, Ireland, and the US as examples of “free” countries, but not Denmark; similarly, they use Venezuela, Cuba, and North Korea as examples of “repressed” countries, but not Zimbabwe or Syria. This isn’t much, but it still makes it look like you need to be a neo-con country to be free, while all (and only) socialist countries are repressed. Also, that graph is sourced to The Heritage Foundation; not exactly the world’s most unbiased source.

There’s still about 1/3 of the book I haven’t looked through. I expect the same problems to crop up there. If they piss me off enough, and are interesting enough to write about, I might make a third post about them in the future. But I think this is quite a lot of clusterfuckery already, and certainly pretty good evidence that these sorts of textbooks are what produces so many libertarians in this country :-/

My Economics Textbook (part one)…

…or “now I know why this country is infested with libertarians”.

My textbook for my Microeconomics class arrived the other day, and I’ve been leafing through it, reading bits and pieces of it. I have no opinion about the various models presented in there, not being an economist (d’uh), but some of the phrases in it, some of the opinions, and some of the “real-life examples” for economic principles etc. are disturbingly bad. If this is what most college-educated Americans know of economics (and it’s very possible, since the textbook claims to be the most commonly used one), I’m no longer surprised so many of them are libertarians.

Some of it may well be a problem with it being a beginner’s class, and thus full of stuff that’s so simplified, it’s almost wrong. It happens. However, when half the explanations seem to include an invisible “assume a spherical cow population of cheap, expendable, emotionless robots”, the simplifications actually end up being potentially dangerously wrong.

Can’t get even past the preface explaining the changes since the last edition, before we get to this awesome paragraph (emphasis mine):

This chapter addresses the question of whether the world is becoming overpopulated and rapidly running out of resources. It covers topics such as declining fertility rates, the optimal rate of resource extraction, resource substitution, resource resource sustainability, oil prices, and alternative energy sources. An understanding of the basic economic principles of natural resource economics will be critical to future voters and leaders. This micro treatment of natural resource and energy topics is particularly timely since many students are regularly exposed to alarmist views on these subjects

ooooh, “alarmists”, what a wonderful start. Ok then, let’s go to Chapter 15: Natural Resource and Energy Economics. First, we get a fairly decent (as far as I can tell) assessment of demographic development, with the minor smearing-by-omission of Malthus, whose assessment of the dangers of populations was quite right for a world in which two things didn’t exist: female emancipation and reliable birth control. The book only says that he was wrong. Also, a strange paragraph about how women had to have many children just so at least two could survive to adulthood, and that “parents – initially unaware that such a revolutionary change in death rates has taken place – for a while kept having six or more children”. Something tells me that wasn’t nearly as planned and premeditated as it sounds. Like I said, “assume robots”…

Then we go to resource usage: all these doomsayers were wrong because in fact the supply of resources has been increasing. True enough, so far, since we haven’t run out of anything significant yet. And what will happen when we do run out? Well, population growth will stop and reverse, and resource use has also leveled off (Forgetting to mention that many have leveled off waaaaay above sustainable levels while some don’t HAVE sustainable levels at all, and that some have leveled off ONLY on a per-capita basis was a pure accident, right?), and therefore we can conclude that future technology will prevent demand for resources exhausting their overall supply (wut? that would require the ability to increase efficiency to the point where you can create something out of nothing, or replacing it with an equivalent. just what is equivalent to iron? oil (for fuel AND plastics AND medicine)? potable water?!). Oh, and “even if we were to run out of oil, alternatives would quickly become available”. IF we run out of oil? Also, I’d like to know their definition of “quickly”. New stuff only comes quickly to those with money, and these new resources wouldn’t be cheap, merely relatively cheaper than the now extremely expensive oil. Oh, and we’re not going to run out of energy because of “clean coal” and fuel made from turkey guts. Really. And lastly, overexploitation is caused by “incomplete property rights” (because no one ever over-extracts their own resources and companies ALWAYS carefully plan years and even decades ahead instead of worrying primarily about increasing next quarter profits. Just ask the Enron Guys). This is exemplified by the tiresome example of successful vs. unsuccessful wildlife preservation: State-run programs always have massive problems with poachers. Programs that have the local population as “owners” of the wildlife, i.e. in control of the tourism (they run it, they profit from it, etc.) give the population more incentive to protect the animals and not kill them. This is phrased as a “public property vs private property” thing, when in all the programs I’m familiar with the “property” is communal, at the village-level. If it were in fact private, I suspect it would just cause the same situation as with Medieval European”private hunting reserves”: the owner has incentive to protect the forest and the wildlife, but everyone else doesn’t.

At the end of the chapter, there’s a little essay called “Is Economic Growth Bad for the Environment?”. They argue that it isn’t, because rich countries have higher EPI scores. They even have a nice chart that indeed shows a very strong correlation between EPI scores and GDP per person. Which of course tells us fuck-all about economic growth, and conveniently ignores the fact that most extraction and manufacturing, the source of most resource use and pollution, has been outsourced out of these rich countries into the poor countries. And a certain economist whom I won’t name even suggested exporting waste. Plus, even scoring the highest on EPI doesn’t mean it’s enough, if “highest” still means using too many resources, spewing too much CO2 into the atmosphere, degrading arable land, unsustainable use of water, etc.

To round off the “economics and environment” issue, in another chapter, they have this to say about Climate Change:

Economists also stress that the market mechanism, through its system of prices and profits and losses, will make appropriate adjustments based on new climatic realities. Air-conditioner sales may rise; snow shovel sales may fall. Some agricultural lands probably will be deserted; others farther north will be cultivated. The maple syrup industry in New England may shift to Canada. Nevertheless, the transition costs – the costs associated with making economic adjustments – of global warming will undoubtedly be very high unless some actions are taken to reduce greenouse gases. But industrial economies are built on carbon-based energy sources, so the costs of reducing such gases are also quite high. The relevant question from the economic perspective becomes: Will it be less costly for society to reduce greenhouse-gas emissions or simply to try to mitigate their effects?

First off, what lands further north? The soil-less Canadian Shield? The permafrost currently sinking into the ocean? And this would of course happen at the cost of the forests that are currently covering these areas, but without new forests sprouting up in the abandoned deserts (see Iraq and Egypt for what happens when agricultural lands stop being agricultural).

And secondly, “cheap, expendable, emotionless robots” again. I know this is an economics textbook, not an ethics textbook, but you can’t tell me that there’s even a question about which solution would be better: entire countries are scheduled to become uninhabitable, and I’m having a hard time believing such massive disruptions to settlement patterns(nevermind massive death for a moment; apparently human life, especially brown human life, is cheap) could be cheaper than CO2 emission reduction.

This concludes the environmental part of the rant. Since the post is already pretty long, I’ll stop here, and write the rest tomorrow (I really really will, promise. It’s already partially written anyway).