Is America Doomed?
The Free-Rider Problem
Profits Before Pay
Do Schools Make A Difference?
The Right Way
- Green Shoots from the Arab Spring, 17 November 2012.
- Political Prejudice, 17 September 2012.
Jonathan Haidt: Professor of Psychology, University of Virginia.
Dan Kahan: Professor of Law and Psychology, Yale Law School.
Roger Scruton: Philosopher.
- Why Economics Is Bunk, 4 June 2012.
- America: The Right Way, 27 February 2012.
Jay Cost [Commentator, The Weekly Standard]:
[We are faced with] the end of an era.
For over half a century we could have social welfare spending, a massive military, low taxes and a balanced budget.
[Now] we can’t have those anymore and neither party has come to terms with it. …
Michael Lind [Founder, New America Foundation]:
I’m a native Southerner [from Texas.]
[The South is] almost sort of a country within a country.
[Since] before the Civil War, it’s had this tradition of fear and loathing of central government …
[This] idea that its people and its institutions are under attack by alien outside forces.
You can’t understand the paranoia and the rejectionism of the modern American Right without recognising that much of it comes from the political culture of white southerners. …
Henry Olsen [Vice President, American Enterprise Institute]:
Over a quarter of our votes now are cast by racial and ethnic minorities [who] tend to vote for the Democratic Party.
And [some of the evolving Republican] views on social issues [have driven] wealthy, educated people away from the Republican Party towards the Democratic Party …
[This] means that the Republican Party now has to win massive majorities among the white working class in order to [achieve] narrow electoral victories. …
I like being able to fire people that provide services to me. …
This century must be an American century.
This is America’s moment.
We should embrace the challenge and not shrink from it, not crawl into an isolationist shell, not wave the white flag of surrender, nor give in to those who assert that America’s time is passed. …
[America] still spends more than all other large nations combined on defence [and attack.]
But can it afford [to in] future? …
The second wave immigrants who … entered the electorate in the 1930s, they were overwhelmingly Democratic.
[In] the post-war years … those voters moved from the working class into the middle class and by 1980 they were voting Republican. …
[However, the] amazing prosperity that elevated Italians and Poles from the working class into the middle class … cannot be taken for granted now.
The Republican Party cannot assume in two generations Hispanics will be voting Republican because they can’t assume that they’ll be better off then than are now. …
“Extremism in defence of liberty” is what Goldwater promised in 1964 and the American people decided that message was a little dangerous for their tastes.
But in 1980, more gently expressed, the same notion fuelled the Reagan revolution.
- Profits Before Pay, 20 February 2012.
Duncan Weldon: Senior economist, Trades Union Congress.
James Plunkett [Secretary, Commission on Living Standards, The Resolution Foundation]:
In the lead up to the recession: from about 03 to 08 we saw almost no wage growth in the middle and below in the UK economy despite the fact the economy grew by 11 per cent in that period.
[Then] the recession hits and you see people’s wages fall …
Stewart Lansley [Research fellow, Bristol University]:
The wage share is … the share of the total output in the economy that goes to the workforce …
[The] share of the economic pie [that’s going to the workforce] is smaller now than it was 30 years ago.
[In contrast] the gains from growth in 30 years after the war were divided more or less equally.
[The] workforce have been separated from the proceeds of growth … at an accelerating rate. …
[In] the 80s … we saw rising inequality across the spectrum …
[The middle] moving away from the bottom and people at the top are moving away from the middle …
What has changed … since the late 90s [is] the top 1 to 3% have detached from the rest …
Currently someone in the top 3% earns over £65,000 a year.
For the top 1%, it’s over £117,000.
And of course some earn a lot more. …
Matt Oakley [Head of Economics, Policy Exchange]:
[There's] some evidence [that] giving tax credits [allows firms to] pay less wages than it would do otherwise. …
[In the] post-war decades [the first wave of] job growth [shifted people] out of unskilled factory jobs into [skilled] white collar jobs.
[The second wave, saw] women entering the labour market throughout the 80s … pushing up household income …
[Later] we saw tax credits and the Labour Government [directly supporting struggling] households …
[Each] of those waves [have now] slowed down or broken …
[So] the question is [what is] going to drive up household income in the next 10 years?
[These trends] have long been apparent in the United States. …
Jacob Hacker [Professor of Political Science, Yale University]:
Between 1979 and 2007 … 40% of all household income gains went to the richest 1% of Americans …
DeAnne Julius [Economist, Chatham House]:
[The information communication] technology revolution [has] disproportionately benefited higher skilled people, which means the higher end of the income distribution.
[It's] also killed off … the secretarial positions, the admin positions which a lot of semi–skilled people in earlier decades filled. …
It’s a fallacy to think that increasing productivity automatically leads to increasing wages.
[For example,] manufacturing productivity [has] up much faster globally than service productivity, but that doesn’t mean that manufacturing wages have gone up in the West because those jobs are now often done by people earning much less in East Asia.
[The] other major structural change in the economy since the 1970s has been the impact of globalisation.
Roger Bootle [Managing Director, Capital Economics]:
[What’s] occurred as a result of the opening up of world economy is that something like a couple of billion workers have just joined the world economy. …
[This puts] downward pressure on [the] real incomes of people who are in competition [with] people in emerging markets.
[A recent OECD study] showed that it wasn’t really trade flows that seem to affect wages.
It was more the dispersion of supply chains – the outsourcing, the fact that many labour-intensive industries actually shifted from European countries to China, to Asian countries.
So it was more the flow of capital that affects where companies are investing rather than trade itself, and both of those of course are an element of globalisation.
In the US and Canada we’ve seen … stagnation in middle wages for about 30 years.
[In Germany] for about 10 years or so.
[Yet] France [and] Australia have seen much stronger growth at the bottom …
[They] have not just a minimum wage but a … more complicated system of mechanisms to push up wages.
[In France] workers above the minimum wage have their pay linked to the minimum wage, so that when the minimum goes up, they go up as well. …
There were a series of acts in the 1980s that weakened the power of unions …
[Labour market deregulation] gave business more power.
[The] balance [of power] shifted [and the] checks and balances that used to exist in the economy were removed in favour of one group against another.
The American economist J K Galbraith coined the term “countervailing power” in the early 1950s.
[In] the years before the Second World War the US economy had been dominated by big business to the detriment of employees …
[In] the post–war world this power [was] balanced by a stronger role for trade unions [and] government.
[The] weakening of trade unions and their countervailing power in the UK since the 1980s has played a part in driving down the share of the economy that reaches those in the middle and below. …
Through the 1950s and 1960s the wage share of the economy … was around 58 to 60%.
In the mid-1970s it began to rise quickly, briefly hitting a peak of 65% [in 1975.]
Corporate profits came under pressure, investment began to fall and the UK found itself in serious economic problems culminating in a bail out from the IMF in 1976. …
[Since then] overpowerful labour has [been replaced by] over powerful capital.
[And] the wage share [has fallen into] the low 50s. …
In the 1950s and 1960s, we had a … model of capitalism in which the share price and profit were both key drivers of business activity but [not the only ones.]
[Relationships] with the staff [and with] the community [were also important.]
[Subsequently] a lot of those extra [social responsibilities were] ditched. …
It’s perverse [that governments] can borrow at [negative real interest rates] and yet [companies continue to demand] huge returns – 10%, 15%, in some cases 20% – from prospective investment.
[That's] a major failure of the system …
[What] would have happened in the 19th century?
What would the great Victorian entrepreneurs and businessmen have done confronted with these very low rates of interest?
[The] answer is they’d have rebuilt the world. …
[The] Institute of Fiscal Studies believes the squeeze on living standards will continue until at least 2016.
[The] factors that have put wages under pressure, such as globalisation and technological change are here to stay, whilst the factors that helped … to drive incomes higher, such as the growth of two earner couples or transfers through the tax system, have slowed down. …
[If] both members of the household are already in work and tax credits and other benefits are [not] increased, then the [only] future driver of incomes can … be wages.
Gavin Kelly [former Downing Street adviser]:
[No single] department in Whitehall … sees it as their job to worry about big trends in living standards facing the working population of this country.
[Everyone] has in interest in it but no-one really owns it.
The Treasury … focuses on growth and the public finances …
[The] Department of Work and Pensions [on] unemployment and … child poverty.
There’s not much data on [what] actually informs key decision making.
If you want to have a debate about a particular tax change or a particular spending cut, you will be inundated with analysis …
[But if] you [ask:
'How] is this type of household faring from all the wider sort of trends which could impact on [it?']
‒ you’ll find it quite hard to get that information.
No one can deny that technology [and globalisation] have had a major impact on wages in Britain.
But [they] simply cannot explain why the trend has moved further in the US and the UK than elsewhere.
If we want living standards to start rising for ordinary people … then we need to see wages rising again.
If we don’t then the 2010s will resemble the 2000s but without the alleviation of cheap credit, rising house prices and generous tax credits.
People will get poorer, something that no modern generation has experienced on this scale. …
[How] we can talk about economic recovery in any meaningful sense unless the rewards from growth are more evenly shared[?]
Even if we do get growth back [‒] given how far we have fallen in terms of living standards of working people over the last few years [‒] it will take [until around 2020 before many households recover] the position that they had … prior to the recession.
- Do Schools Make A Difference?, 12 January 2012.
Harvey Goldstein [Professor of Social Statistics, Bristol University]:
After you’ve adjusted for the achievements of children when they start school, there are further effects related
- to their social background …
- to whether they’re a boy or a girl,
- to their ethnic background [and]
- [to social class and income.]
Once you’ve [accounted for] all those [the school effect] accounts for [maybe] 10% of what’s left …
[Nobody] we spoke to in academia believed [league tables were of] any use to parents.
[In our study of] 19 Bristol schools [you couldn’t] distinguish statistically between any of them.
- The Darwin Economy, 11 November 2011.
Robert Frank: Professor of Economics, Johnson Graduate School of Management, Cornell University.
Tom Schelling … noted that hockey players, if they were given a choice, would always skate without helmets.
But … if they took a vote on the manner in a secret ballot, they would vote often unanimously for a rule requiring themselves to wear helmets. …
[His explanation was] that what is in the individual interest in competitive situations when rank is really what matters isn’t necessarily what’s in the group’s interest. …
Amos Tversky [–] one of the founders [of behavioral economics –] liked to say,
My colleagues … study artificial intelligence.If you’re a merchant, you want a sign that people will see.
… I study natural stupidity. …
What must a sign be like in order to be seen by people driving by?
It must stand out from the visual field.
It’s not how big it is; it’s whether it’s bigger than the other signs. …
And so the equilibrium amount of signs gets huge and then we get a visual blight …
[One could address this with] a few zoning laws. …
[The economic libertarians say] workers can get higher wages if they take riskier jobs. …
[Say] I’m a worker [and] I want to send my kids to the best possible school I can.
The good schools are located in the neighbourhoods where the houses are more expensive.
So if I want to send my kids to a school of average quality if I’m in the middle of the earnings distribution, what must I do?
I must outbid 50 per cent of all families who are trying to do the same thing.
One way I can get a leg up doing that is to sell my safety for a higher wage, so that puts me ahead in the bidding.
But then you can do the same. …
You sell your safety, I sell my safety.
We’ve each bid for houses in better school districts.
At the end of the day, we succeed only in bidding up the price of those houses.
Half the kids go to bottom half schools same as before.
- The Spirit Level: the theory of everything? 11 October 2011.
- Aid or Immigration?, 3 October 2011.
- Non-Riotous Behaviour, 19 September 2011.
Tim Harford [The Undercover Economist, Financial Times]:
[Ten people] are each given ten pounds to invest.
They can [either] invest it in [the public good] or they can [keep] it for themselves.
[Money] that’s invested in the public good is doubled.
[So if everyone invests in] the public good … everyone will have their money doubled.
[But] if everybody just holds on to the money themselves, then they’ll each keep their ten pounds. …
[A rationally self-interested agent might think:]
If I invest the ten pounds in the public good [but no-one else contributes], that’s twenty pounds, but I have to share it with ten other people [leaving] only two pounds for me [– a loss of] eight pounds …Simon Gaechter [Professor of the Psychology of Decision-Making, University of Nottingham]:
[But if I] hold on to my money [and the other nine contribute 10 pounds (generating 180 pounds divided 10 ways) I'll profit by 18 pounds.]
[About] twenty per cent [of subjects free-ride and] don’t put in anything …
[In] older people … it can be as low as ten per cent.
[If you] introduce the possibility of punishment … contributions shoot up … dramatically. …
[After] a while, there [are] very high levels of co-operation and very little punishment because it’s [no longer needed.]
[A credible] threat of punishment [keeps] many people in check who would [otherwise] violate [social or] legal norms. …
Legal penalties reassure people that co-operation will be sufficiently widespread to be worthwhile.
[A minimum threshold level of] coercion is required to get high levels of co-operation.
[Genuine] cooperation, not obedience based only on fear of the authorities.
- Is America Doomed?, 3 July 2011.
[During] the Second World War … the total debt rose sharply …
[However,] by the time of the Clinton administration they were seriously considering bringing it down to zero. …
Richard Haass [President, Council on Foreign Relations]:
[Three] or four things [contributed to the subsequent blow out of the national debt:]
One was the tax cuts early on in the Bush presidency.
Two, you had year after year after year of a rather remarkable growth in federal government spending.
Thirdly, after 9/11 you had a tremendous growth in the national security state, Homeland Security … the war in Iraq and to a lesser extent the war in Afghanistan.
[Lastly] with the economic crisis of 2008 …
[You] had the tremendous efforts [of the Bush and then the Obama administrations] to stimulate the economy.
And all through this tax rates have stayed … low.
[This gap between spending and revenue] has been going on for a decade now. …
[For] his re-election bid Barack Obama alone is seeking to raise a billion dollars.
Every senator and congressman needs to get as close to that figure as he or she can.
[And it] is raised from wealthy folk … big business, big banks, and the financial industry. …
Now what is it that [all] those people don’t like? …
David Frum [Former Speech Writer to George W. Bush]:
The United States spends about 17% of its national income on healthcare.
If it spent the same as the runner-up, Switzerland [13%] – that would be like getting the entire defense budget for free …
On the revenue side [the] deduction for home mortgage interest [is unnecessary and leads to] over investment in housing.
Canada [and] Britain … maintain very high levels of home ownership [without it]. …
Jeffrey Sachs [Director, Earth Institute, Columbia University]:
We are an overstretched society … that relies excessively on military approaches to global problems.
These military approaches are ferociously expensive and highly ineffective.
America [could] get much more for its money through diplomacy and development. …
Diane Coyle [Economist]:
[There] really is a huge economic and financial mess in the States at the moment …
[My] pessimism [is] not only the fiscal deficit but the banking sector …
[The] absence of any banking sector reform and the capacity of the banks [to lobby] so effectively against any reforms. …
… Churchill [said] that Americans can be counted on to do the right thing, but only after they have … tried everything else.
[The question is, can we] put together a new approach to dealing with our deficit and debt before the world [does it for us?]
[If not we may eventually face truly draconian and indiscriminate] international financial pressures …
- Radical Economics: escaping credit serfdom, 7 February 2011.
- Radical Economics: Yo Hayek! 31 January 2011.
- Criminal rehabilitation: a sub-prime investment?, 8 November 2010.
Emma Jane Kirby.