Do historically lower interest rates cause higher inequality? Basically raising the return for entrepreneurs? Maybe another reason why this something that maybe fixed through natural causes vs policy innovation.
1
One of America's greatest strengths is its people's competitive spirit and can-do work ethic. Perhaps an acceptance that the competition is now truly a global affair and a re-commitment to excellence is in order. The complaining and blaming of others for the decline of the middle class in America's political discourse, and reflected in a number of the other comments to this article, is hardly conductive to solutions.
America, remember who you are - and as the author suggests - seize on the international innovations to help boost your economy and morale!
America, remember who you are - and as the author suggests - seize on the international innovations to help boost your economy and morale!
5
When China sinks a US aircraft carrier, free-trade zealots like Cowen will still first to say, "Hey, one less aircraft carrier on the federal budget! Just think of how much more we can buy from China with the tax cut!"
24
The oft-cited rising wage story in China is phony. The Chinese government has artificially created a shortage of labor in the south and east by limiting internal immigration.
They could change tack tomorrow if they wanted to and revert to an export intensive economic model if their plan to smoothly shift to a domestic-led consumption model falters (which looks to be happening).
They could change tack tomorrow if they wanted to and revert to an export intensive economic model if their plan to smoothly shift to a domestic-led consumption model falters (which looks to be happening).
20
When much of the wealth of country is concentrated in the hands of too few there is a problem. That problem is that the country's GDP will slow as the wealthy do not need to spend their wealth in times of recession/depression. The wealthy are mostly concerned with increasing their own wealth, not what is good for society as a whole. During times of recession/depression the economy would be starved by lack of spending by the rich because they see no need of it and the poor because they have little to spend. Normally, the Government steps in and provides spending to help the economy. There are now those politicians who do not want the Government to spend money under these conditions. What you end up with is stagnation of the economy. Sadly, much of the stimulus options had the effect of enhancing the wealth of the wealthiest, not the lower end poor. Are there solutions? I think so, but you will never find them from those politicians who want to starve the Government of the ability to help the economy. You know who they are.
30
I have never heard such rubbish in my life in that this is coming from an economist!
Here is the unshakable reality.
From 1945 to about 1975 the middle class saw their wages increase about one to two points ahead of inflation each year. This real gain in wages allowed them to pay for a house and send their children to college.
Starting about 1975 the middle class saw their wages slip to one to two points below inflation each year. Each year their buying power went down. To make up for that, their spouse which was typically a woman, went to work. By adding that 2nd income they managed to stay middle class for about 20 years. With the shifting of manufacturing overseas and the drop in goods prices, they "bought" themselves about another 20 years.
But, the inevitable tide of inflation, even at 1 percent a year, has eaten away at that gain from the second job and the cheep prices on goods.
So, we are now at the point where people have tapped their homes for money and sent their kids to college with large debts. All those gain have been eaten away and we are back to 1975.
There is in 2016 nothing else they can do. There is no one else to send into the work force, unless we want to go back to child labor, and prices for goods are not going to come down a lot. Even if it did, that "efficiency" would cast more people out of work.
The middle class is doomed unless we make fundamental, some wold say revolutionary, changes to how we structure the economy of the United States.
Here is the unshakable reality.
From 1945 to about 1975 the middle class saw their wages increase about one to two points ahead of inflation each year. This real gain in wages allowed them to pay for a house and send their children to college.
Starting about 1975 the middle class saw their wages slip to one to two points below inflation each year. Each year their buying power went down. To make up for that, their spouse which was typically a woman, went to work. By adding that 2nd income they managed to stay middle class for about 20 years. With the shifting of manufacturing overseas and the drop in goods prices, they "bought" themselves about another 20 years.
But, the inevitable tide of inflation, even at 1 percent a year, has eaten away at that gain from the second job and the cheep prices on goods.
So, we are now at the point where people have tapped their homes for money and sent their kids to college with large debts. All those gain have been eaten away and we are back to 1975.
There is in 2016 nothing else they can do. There is no one else to send into the work force, unless we want to go back to child labor, and prices for goods are not going to come down a lot. Even if it did, that "efficiency" would cast more people out of work.
The middle class is doomed unless we make fundamental, some wold say revolutionary, changes to how we structure the economy of the United States.
127
Yep. Amen.
21
Our biggest problem is that the US dollar is a reserve currency. This causes the US to seem very expensive relative to other countries.
If we had an ordinary currency, we would be very competitive and have a lot more manufacturing.
If we had an ordinary currency, we would be very competitive and have a lot more manufacturing.
2
Wouldn't this lend more credence to the hypothesis that as the global middle class rises so will the American because the $ won't be the reserve currency any more? Basically the countries that constitute the global middle class will have their respective currencies strengthened not longer look at the dollar as the reserve currency.
3
And now how about a word form the prophet of profits, the counselor of Kochs, the liaison of the libertarians, the clown of capital, the mountebank of "mutual gains from trade," the moralizer of misery.
Once China's labor force becomes too expensive, guess what happens? Capital will pick up and leave for cheaper realms of production. It is already setting its sights on Africa, which Cowen surely knows about, but will never admit because it undercuts his totally awesome "competitive advantage" argument.
I suppose the good news is that the priests of capital are now starting to realize that the system is not intrinsically moral and that it needs to be supplemented by moral sentiments outside of its domain. The fellows at the Mercatus Center love to discuss an 18th c. philosopher who made this very argument. Now what was his name?
Once China's labor force becomes too expensive, guess what happens? Capital will pick up and leave for cheaper realms of production. It is already setting its sights on Africa, which Cowen surely knows about, but will never admit because it undercuts his totally awesome "competitive advantage" argument.
I suppose the good news is that the priests of capital are now starting to realize that the system is not intrinsically moral and that it needs to be supplemented by moral sentiments outside of its domain. The fellows at the Mercatus Center love to discuss an 18th c. philosopher who made this very argument. Now what was his name?
51
Tyler Cowen is misleading the readers. When 80% of our economy is now composed of the service sector that includes retail, blaming foreign competition for wage deterioration of the middle class is not balanced. 80% of the middle class is engaged in the work for the service sector where no foreign competition exists. Rather income of the middle class has been compressed by the behavior of the management that desires to increase dividends eternally to the investors, and accordingly, to increase their compensation as reward.
50
How refreshing! No need to help America's desperate poor. Let the 1%ers keep on siphoning away our nation's wealth and keep blaming impoverished people for their own suffering.
After all, all they have to do is suddenly, spontaneously, practice "behavior consistent with prosperity, such as savings, mutual assistance, family values and no drug and alcohol abuse."
Just a few questions for Mr Cowen: How do people who have no money save? How do hundreds of thousands of drowning people practice mutual assistance? How do homeless or about-to-be homeless families express "family values" day after terrifying day with little or no hope for the future? How do people who get ensnared in drugs and alcohol as children, thanks to marginally older neighbors who are medicating their suffering, become clean and sober with no assistance and no jobs to aspire to?
After all, all they have to do is suddenly, spontaneously, practice "behavior consistent with prosperity, such as savings, mutual assistance, family values and no drug and alcohol abuse."
Just a few questions for Mr Cowen: How do people who have no money save? How do hundreds of thousands of drowning people practice mutual assistance? How do homeless or about-to-be homeless families express "family values" day after terrifying day with little or no hope for the future? How do people who get ensnared in drugs and alcohol as children, thanks to marginally older neighbors who are medicating their suffering, become clean and sober with no assistance and no jobs to aspire to?
96
Foreign competition evolved because the cost of doing business in the U.S. Was too expensive with union demands. Technology at the current expected level now requires a college degree in many cases. Persistent poverty has had money pored into many programs since the war on poverty in the mid 1960's to no avail.
4
The only sources that I could find that said the war on poverty were a "failure" or a "catastrophe" were from Heritage, Forbes, and Fox... not necessarily who I'd like to quote, but they do indicate your reading choices.
A more nuanced look at the claim can be found here: https://www.washingtonpost.com/news/fact-checker/wp/2015/05/06/paul-ryan...
The basic gist of it is Republicans focus on where clearly we've come up short, while overlooking areas that were incredibly successful. Cherry picking, in other words.
It would seem to me that with reform and focusing more on the successes than the failures (but learning from them), we could be even more effective in the next 50 years than the last.
A more nuanced look at the claim can be found here: https://www.washingtonpost.com/news/fact-checker/wp/2015/05/06/paul-ryan...
The basic gist of it is Republicans focus on where clearly we've come up short, while overlooking areas that were incredibly successful. Cherry picking, in other words.
It would seem to me that with reform and focusing more on the successes than the failures (but learning from them), we could be even more effective in the next 50 years than the last.
12
This is absolutely ridiculous. The Chinese are out for themselves and feel that America and the West should suffer for the many years that China was dirt poor.
We and our leaders have been sucked in by thinking that the Chinese would play fair. Instead they have manipulated their currency to maintain their advantage as our factories continue to disappear.
The American Middle Class is an outdated concept unless our government wakes up very soon and starts fighting back. The liberal idea that we should try to help the less fortunate countries is killing us. Wwe are now among the less fortunate!
We and our leaders have been sucked in by thinking that the Chinese would play fair. Instead they have manipulated their currency to maintain their advantage as our factories continue to disappear.
The American Middle Class is an outdated concept unless our government wakes up very soon and starts fighting back. The liberal idea that we should try to help the less fortunate countries is killing us. Wwe are now among the less fortunate!
54
Id expect every country is out for themselves, they aren't charities. Blaming the Chinese for our problems wont lead us to solutions that actually help Americans who are badly affected by the rise of China or any other developing nation. China isn't taking jobs because of its currency, it is not traded freely. They have a large population and have developed more recently so have been able to build facilities and factories we can only dream of in the US. Frankly Im wasting my time responding to your rant but I will encourage you by telling you that evil China has incurred more debt then we can imagine developing like this and this may be their downfall.
10
I don't think our leaders ever really thought or cared that the Chinese would play fair. Currency manipulation is 1) a recent phenomenon and 2) tiny inscale compared to the trillions of $$ in FDI we and our allies put into China. We can't really blame them for accepting the money we shoved into their hands.
6
Tyler Cowen is the director of the Mercatus Center, which the Washington Post has described as a "staunchly anti-regulatory center funded largely by Koch Industries Inc.” The Koch brothers have directly funded Cowen's research (https://books.google.com/books?id=ADydOEGjQQgC&lpg=PR5&pg=PR5#v=....
It is unsurprising that Cowen blames impoverished people for their own poverty due to a lack of a strong moral code and encourages us to seek remedies to inequality out of politics.
It is unsurprising that Cowen blames impoverished people for their own poverty due to a lack of a strong moral code and encourages us to seek remedies to inequality out of politics.
125
Just when you think that the pro-free trade crowd has thought of everything, they come up with something new and utterly ridiculous. Let me get this straight, religion will help restore the middle class? I guess we had better start praying now. Trade is zero sum, always has been and always will be. The likely result of more Chinese innovation will be less innovation in the U.S. because innovation occurs where things are made, not where they are consumed. China will be able to dominate every up-and-coming industry because of its industrial policies, its intellectual property theft activities, its subsidies, its lower currency, and its economies of scale. The U.S. on the other hand will be stuck with an ever shrinking industrial sector and fewer well-paid jobs for the middle class.
59
Sounds like a piece of advertising for the China Trade Representative office, assuming there is one. Seriously, Chinese capitalism is stronger than the American one - not because it has more innovation (it doesn't) but because of strong popular and governmental support to the productive industry. Thus, it is winning, and with the remainder of not-super-high-skill jobs leaving these shores (OK, I don't count plumbers, nurses and teachers) the middle class will shrink and disappear altogether.
Until we force ourselves, for the starters, to commit to the neutral trade balance overall, and make an honest effort to achieve such neutrality for goods (balance for services is too easily skewed by Google and Hollywood, which don't help employment much), no progress will be seen.
Until we force ourselves, for the starters, to commit to the neutral trade balance overall, and make an honest effort to achieve such neutrality for goods (balance for services is too easily skewed by Google and Hollywood, which don't help employment much), no progress will be seen.
24
China is the major producer of solar panels, which the Chinese government illegally subsidizes in order to dump the panels on the US market for below cost, driving US companies out of business.
41
Laughable if it wasn't so sad. The wealth in this one nation of ours eclipses the combined wealth of all other empires through the entire history of human society. And yet ... The majority of that wealth is locked up by .001% of the world population. Until you figure out how to unlock those resources you have a serious macro economic catastrophe. The problem is systemic. And while all the items in this article may be true and may be helpful they will not add up to substantive wealth equality. We are dealing with intra-imperialism; the middle class was colonized, they were enticed to give up their natural economic skills in order to mine their resources for the dream of a big payout; their resources were extracted and shipped away, and now they have neither resources nor their natural economic skills while they have been abandoned by the empire. This is how all colonized societies work save for the ones that successfully rebel before all their resources are gone. I might sound like a kook but when you look at the real numbers they are so staggering and unprecedented in world history that nearly any theory of why this happened or what comes next is credible. And i unfortunately have bad feeling about what comes next. We surly will need religion if and when this unprecedented wealth consolidation implodes.
37
The biggest problem with current free trade policy is that the benefits are mostly gained by investors and management of the companies involved. The workers who lost their jobs were promised help in retraining and education. Very little has been done, republican congress claims there is no money available. The fact is that the money is available if the profits from free trade were brought back to USA and taxed and are used assist the injured workers.
31
There's plentiful money if usa spends billions $ less p.a. On killing machines. But drug addicts low IQs etc are not worthwhile spending money on by the ruling 1%. Meanwhile keep blaming China/Asia for your ills
1
A lot of this is wishful thinking. Globalization, free trade created strong incentives for American business to ship jobs and manufacturing overseas to countries with low cost labor and resources. The middle class is likely headed for further decline. That accounts in part for the insurgencies of Trump and Sanders. We are faced with a Hobson's choice. If a President Trump or Sanders scraps free trade agreements and persuades the
Congress to impose tariffs (think Smoot-Hawley), they might well trigger a devastating trade war. If President Hillary Clinton continues to support globalization and free trade, the ever-increasing American middle class might seem like a lucky historical accident.
Congress to impose tariffs (think Smoot-Hawley), they might well trigger a devastating trade war. If President Hillary Clinton continues to support globalization and free trade, the ever-increasing American middle class might seem like a lucky historical accident.
15
Dr. Cowen is engaging in speculation - the same type of speculation that buttressed the free trade policies of the post WWII era.
Is he right? Well, only time will tell. The problem is that the redistribution of income that invariably accompanies the opening of international markets favors the factor of production in the country which has a relative abundance in that factor. That is, the returns to capital in capital abundant America and returns to labor in labor abundant China would improve while the returns to capital in China and labor in America would diminish. In short, American capitalist would benefit at the expense of the American working class and at least some segments of the American middle class, while the Chinese laboring class would benefit at the expense of Chinese capitalist. It shouldn't come as any surprise that 500 million people have been lifted out of extreme poverty in China over the past two decades. Nor should it come as a surprise that American wages, especially for the lowest rung of population, have stagnated over the very same time period.
Will this change as the standard of living in China approaches that of middle income countries? Perhaps, but no one can say for sure. One thing is certain: academic economists missed the mark with regard to the effect of globalization on American wages. Should they be trusted again?
Is he right? Well, only time will tell. The problem is that the redistribution of income that invariably accompanies the opening of international markets favors the factor of production in the country which has a relative abundance in that factor. That is, the returns to capital in capital abundant America and returns to labor in labor abundant China would improve while the returns to capital in China and labor in America would diminish. In short, American capitalist would benefit at the expense of the American working class and at least some segments of the American middle class, while the Chinese laboring class would benefit at the expense of Chinese capitalist. It shouldn't come as any surprise that 500 million people have been lifted out of extreme poverty in China over the past two decades. Nor should it come as a surprise that American wages, especially for the lowest rung of population, have stagnated over the very same time period.
Will this change as the standard of living in China approaches that of middle income countries? Perhaps, but no one can say for sure. One thing is certain: academic economists missed the mark with regard to the effect of globalization on American wages. Should they be trusted again?
11
So everything will be cool if poor people buy an Amazon Echo?
As far as China, they are not going to help anyone but themselves.
We could help ourselves by outlawing trade deficits. Trade is supposed to balance as surplus countries see their currencies rise. But these same surplus countries have found ways to rig things so they run permanent trade surpluses which costs the US millions of jobs.
As far as China, they are not going to help anyone but themselves.
We could help ourselves by outlawing trade deficits. Trade is supposed to balance as surplus countries see their currencies rise. But these same surplus countries have found ways to rig things so they run permanent trade surpluses which costs the US millions of jobs.
17
Why should China helps anyone? Did the West help China in past?? Never! The raw wounds of the Eight Nation Alliance still bleeding
1
Dr. Cowen,
This is an interesting piece. I agree with your observations and obviously I am concerned that the US is not responding & seems to be failing in competing for the future, which we already know, will be required to use non-fossil energy sources & we must redirect the enormous investment in fossil fuels that has made the US and the World economically successful.
The US should be leading in survivable technology, but our existing industries are reluctant to shift its investment capital into technologies that will allow us to lead in the new energy future.
I am associated with a technology pathway to the future by my colleagues, Drs. James Powell & Gordon Danby, who are inventors of superconducting Maglev technology, which is 50 years old this year. Using their technology to increase the energy & environmental efficiency of our surface transport system is resisted by our political/private sector system.
Nearly 20 years ago, the late Senator Pat Moynihan suggested using the rights-of-way of our Interstate Highway System to build a 300 mph Maglev network for carrying trucks, autos, & people at a much lower cost than airlines, driving, or Amtrak.
The Maglev inventors have also proposed launching payload using Maglev Launch which can place solar arrays in geosynchronous orbit to beam very cheap electrical power to Earth.
These same inventors have proposed in a new book, Silent Earth, to use the cheap electricity to make synthetic hydrocarbons from air and water.
This is an interesting piece. I agree with your observations and obviously I am concerned that the US is not responding & seems to be failing in competing for the future, which we already know, will be required to use non-fossil energy sources & we must redirect the enormous investment in fossil fuels that has made the US and the World economically successful.
The US should be leading in survivable technology, but our existing industries are reluctant to shift its investment capital into technologies that will allow us to lead in the new energy future.
I am associated with a technology pathway to the future by my colleagues, Drs. James Powell & Gordon Danby, who are inventors of superconducting Maglev technology, which is 50 years old this year. Using their technology to increase the energy & environmental efficiency of our surface transport system is resisted by our political/private sector system.
Nearly 20 years ago, the late Senator Pat Moynihan suggested using the rights-of-way of our Interstate Highway System to build a 300 mph Maglev network for carrying trucks, autos, & people at a much lower cost than airlines, driving, or Amtrak.
The Maglev inventors have also proposed launching payload using Maglev Launch which can place solar arrays in geosynchronous orbit to beam very cheap electrical power to Earth.
These same inventors have proposed in a new book, Silent Earth, to use the cheap electricity to make synthetic hydrocarbons from air and water.
5
Seriously, "Technology, trade and even religion may help restore prosperity to the middle class"? What proof does Cowen have that religion has anything to do with income distribution in Utah? Technology and Trade, theoretically, could help restore the middle class, but all too often, it has shrunk it in this country. I'm sorry, but unless there is drastic reevaluation of both economic politics and policies in our country, including tax reform, abolishing corporate welfare, further oversight of big banks, and most importantly, restoring and increasing the social safety net, we will continue to shrink the middle class to zero.
51
Our future economic progress and well being lies in the health of, and spin offs from, the Chinese economy? Is that what the author is saying?
This sounds like that famous economy that would benefit from "Trickle Down" money amassed at the top - you know - the one the Republicans (with the help of not a few Democrats, one of whose name begins with "C") have foisted on us along with tax cuts for the well to do, slashing government and its spending, over the last 35 years.
And where are the benefits of that? By now we should be living in paradise.
This sounds like that famous economy that would benefit from "Trickle Down" money amassed at the top - you know - the one the Republicans (with the help of not a few Democrats, one of whose name begins with "C") have foisted on us along with tax cuts for the well to do, slashing government and its spending, over the last 35 years.
And where are the benefits of that? By now we should be living in paradise.
25
article sounds more like a wish-list than an thoughtful analysis of known facts and trends -
used to be that American middle class made the stuff they bought themselves or sold to the world
now the only demand for American worker's output is for creative stuff like phone designs, Netflix shows or Facebook apps - all of these can be made by a small numbers of (creative) people and copied, streamed to billions all over the world . Minor routine tasks - booking a flight, planning a vacation or even doing your taxes are done by one piece of software (probably written by a few Indian programmers) and a piece of hardware - Amazon Echo or iPhone - designed by very few in the US, but made in China
America remains, by far, the most creative, innovative nation, but most folks without the creative skills, or the programming skills to support the creative output are left with nothing to do
- they drift off to grow pot or smoke pot,meth whatever - it is sad.
used to be that American middle class made the stuff they bought themselves or sold to the world
now the only demand for American worker's output is for creative stuff like phone designs, Netflix shows or Facebook apps - all of these can be made by a small numbers of (creative) people and copied, streamed to billions all over the world . Minor routine tasks - booking a flight, planning a vacation or even doing your taxes are done by one piece of software (probably written by a few Indian programmers) and a piece of hardware - Amazon Echo or iPhone - designed by very few in the US, but made in China
America remains, by far, the most creative, innovative nation, but most folks without the creative skills, or the programming skills to support the creative output are left with nothing to do
- they drift off to grow pot or smoke pot,meth whatever - it is sad.
53
it is plain wishful thinking..the chinese have benefitted no one and will benefit none
20
If they could help it.
2