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Author Topic: Average is Over
Sa'eed
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Libertarian economics professor and blogger Tyler Cowen recently published a book called "Average is Over" in which he argues that the future belongs to the top 15% of the population and the middle class will be no more. The economics trends that started in the 70s, the hollowing of the middle class, will continue. Technology and automation will keep taking away stable jobs, and most Americans will have to live like Mexicans and eat beans. No joke about this latter point.

The disturbing thing is that Mr. Cowen delivers these predictions without any worry. He seems to accept and welcome this future. He says that the "losers" (not his word) will be content with cheap entertainment and free internet. They will move to places like Texas where housing is cheap.

Here is Cowen on NPR's "On Point":

http://onpoint.wbur.org/2013/09/16/economist-tyler-cowen-on-the-end-of-average

[ October 07, 2013, 05:11 PM: Message edited by: Sa'eed ]

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Mucus
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We're living through a period of explosive growth in the middle class with more people in the middle class than ever before both in absolute terms and in percentage terms, so that's just being alarmist for no good reason.

http://www.economist.com/node/13063298

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Sa'eed
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The world is becoming more "equal" but inequality is rising WITHIN the U.S.
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Sa'eed
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Here's another economist who recognizes the same problem:

http://articles.washingtonpost.com/2009-08-09/opinions/36819851_1_unskilled-workers-language-skills-machines

quote:
No, the economic problems of the future will not be about growth but about something more nettlesome: the ineluctable increase in the number of people with no marketable skills, and technology's role not as the antidote to social conflict, but as its instigator.
quote:
Why have the unskilled fared so well? After all, machines -- whether steam engines, internal combustion engines or electric motors -- have replaced people as deliverers of brute force. But even today they cannot replace many of people's manipulative abilities, language skills and social awareness. The hamburger you eat at McDonald's is still put together and delivered to you by human hands; even a fast-food "associate" deploys an astonishing repertoire of spatial and language skills.

But in more recent decades, when average U.S. incomes roughly doubled, there has been little gain in the real earnings of the unskilled. And, more darkly, computer advances suggest these redoubts of human skill will sooner or later fall to machines. We may have already reached the historical peak in the earning power of low-skilled workers, and may look back on the mid-20th century as the great era of the common man.

I recently carried out a complicated phone transaction with United Airlines but never once spoke to a human; my mechanical interlocutor seemed no less capable than the Indian call-center operatives it replaced. Outsourcing to India and China may be only a brief historical interlude before the great outsourcing yet to come -- to machines. And as machines expand their domain, basic wages could easily fall so low that families cannot support themselves without public assistance.


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Mucus
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*shrug* And what's wrong with public assistance?
A future where humans are freed from having to do drudgery like serving McDonald's sounds a lot like a Star Trek-style utopia and yet you're implying that this is a bad thing?

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Raymond Arnold
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Only if the future includes minimim-guarranteed income or somesuch so that the displaced workers can afford the replicated-food.
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Dan_Frank
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quote:
Originally posted by Raymond Arnold:
Only if the future includes minimim-guarranteed income or somesuch so that the displaced workers can afford the replicated-food.

Or they could... You know. Learn new skills? Maybe? Just a thought.

A world in which the only jobs available were those that require human creativity, because every job that doesn't has been taken over by automation, would be amazing. So much better than today it's hard to conceive of. The amount of work-to-leisure ratio would likely be amazing too.

So much productivity and creativity and intelligence is essentially just wasted today.

I'm baffled by the idea that this bodes ill for humanity. That'd be a bright future indeed.

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Rakeesh
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I think one of the larger concern is the transition period between now and this golden future where folks have done the simple 'just learn new skills'.
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Samprimary
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quote:
I'm baffled by the idea that this bodes ill for humanity.
The idea that bodes ill is when the reduction of available jobs via automation is without any regard to the total number of people and variety in skill level and creates vast swathes of bitter and crushing poverty.

We do not live in a world where "learn new skills?" is anything more than a patronizing nonsolution to real issues of joblessness, especially for families with children. Said Bright New Future would have to account for that.

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Raymond Arnold
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To be clear - I think the Bright New Future *can* account for that. But that needs to be thought about, now. (And I know plenty of libertarians who endorse Minimum Guaranteed Income anyway - it can potentially address a host problems with a vastly reduced bureaucracy)

Amusingly, I was actually on the other side of this argument today, from someone who I thought was overreacting to.... automated hamburgers, specifically:

http://foodbeast.com/2012/11/16/heres-a-look-at-the-worlds-first-smart-restaurant-chain-kitchen-free-and-run-by-robots-2/#Sl3R7e6XK4ZUuZRd.01

This will put some people out of work. But not a level that other automation isn't already doing.

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Dan_Frank
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quote:
Originally posted by Rakeesh:
I think one of the larger concern is the transition period between now and this golden future where folks have done the simple 'just learn new skills'.

If anything, I think the transition period is what saves us from the "bitter and crushing poverty" Sam referred to.

If we just got rid of every low-skill job tomorrow and replaced them with automation, we could have a real problem as millions of unskilled people suddenly found themselves unemployed. The sheer number of them, all at once, could easily turn out bad.

Fortunately, it's a process that will take years. Generations, most likely. It's already happened, too. The need for any particular job gets obviated all the time. This isn't a bad thing. It leads to people developing new skill sets.

This doesn't weaken society, it improves it. As I said before, an amazing amount of human creativity and time is essentially wasted on tasks that could be automated. It's a shame.

quote:
Originally posted by Raymond Arnold:
To be clear - I think the Bright New Future *can* account for that. But that needs to be thought about, now. (And I know plenty of libertarians who endorse Minimum Guaranteed Income anyway - it can potentially address a host problems with a vastly reduced bureaucracy)

Sure. Hayek advocated a guaranteed minimum income. Friedman too, I believe. That's one of the reasons Mises called him (and others) "a bunch of socialists," if memory serves.

I'd accept a minimum income if it was the implementation of an advanced, insanely wealthy society like ours that was using it in lieu of a host of other programs and regulations intended to "help" the poor. But advocating it as an optimal solution basically concedes the moral high ground from capitalism to socialism, in an important way that I disagree with.

quote:
Originally posted by Raymond Arnold:
Amusingly, I was actually on the other side of this argument today, from someone who I thought was overreacting to.... automated hamburgers, specifically:

http://foodbeast.com/2012/11/16/heres-a-look-at-the-worlds-first-smart-restaurant-chain-kitchen-free-and-run-by-robots-2/#Sl3R7e6XK4ZUuZRd.01

This will put some people out of work. But not a level that other automation isn't already doing.

Awesome. Why would it be preferable for them to keep doing a job that is better done another way? What's the point of that thinking?
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TomDavidson
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quote:
But advocating it as an optimal solution basically concedes the moral high ground from capitalism to socialism...
Well, yes. That's because capitalism is inherently amoral and loses pretty much all moral conversations.
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Raymond Arnold
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Or, perhaps less argumentatively - I'd like to think the point is not about ceding moral high ground, but figuring out what actually works best.

I'm not entirely sure Minimum Guaranteed Income *does* work best, but it seems better than most alternatives, and *something* other than the free market is necessary in a future where there's *only* creative work available, and jobs may change faster than people can actually retrain.

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Minerva
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That's a pretty gross mistatement of Tyler's views. What Tyler believes is that the rich are getting richer and the poor are also getting richer. Many things that were not even accessible to the rich 50 years ago are now available to almost all of the poor in the United States. While the income gap is increasing, the standard of living gap is decreasing. Things like the differences in medical care, food quality, etc are rapidly decreasing, thanks to markets. Of course, we are constantly raising our standards of what is means to be poor, so this is not readily apparent.

I don't have a link to Tyler's specific article right now, but his blog marginalrevolution.com has lots of examples. For the representation of his views by a friend and colleague (and academic sibling), see http://learnliberty.org/content/are-poor-getting-poorer.

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stilesbn
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http://learnliberty.org/content/are-poor-getting-poorer

Url without the period at the end.

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TomDavidson
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Stiles, it's worth noting that the video you linked contains at least three major statistics errors, the most important of which is the old saw that the bottom fifth has high mobility -- which is only true when you include college students, who traditionally have very little income until they graduate college.

---------

quote:
While the income gap is increasing, the standard of living gap is decreasing.
I'm not sure that's true, especially once you consider that virtually no middle-class families are single-income families anymore.
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Lyrhawn
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quote:
Originally posted by TomDavidson:
Stiles, it's worth noting that the video you linked contains at least three major statistics errors, the most important of which is the old saw that the bottom fifth has high mobility -- which is only true when you include college students, who traditionally have very little income until they graduate college.

---------

quote:
While the income gap is increasing, the standard of living gap is decreasing.
I'm not sure that's true, especially once you consider that virtually no middle-class families are single-income families anymore.
I think this point gets ignored a lot. It takes two incomes to sustain the same standard of living, adjusted for technological inflation, that it took one income to sustain fifty years ago.

That means we have to create twice as many jobs as we did in the past so two person households can have two incomes and get into the middle class. I feel like maybe the goal posts haven't moved, but it takes twice as many receivers to get the ball into the end zone.

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Dan_Frank
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quote:
Originally posted by TomDavidson:
Stiles, it's worth noting that the video you linked contains at least three major statistics errors, the most important of which is the old saw that the bottom fifth has high mobility -- which is only true when you include college students, who traditionally have very little income until they graduate college.

Of course it includes college students. They are a great example of low-income workers (often working part-time, too).

What would you do, remove them from the statistics? The demographics of the bottom 20% would change rapidly then, as lots of tier 2 quintile folk would suddenly find themselves in the bottom 20%, and the income we consider "poor" would change accordingly.

Which sort of reminds me of what a con it is, breaking them down by percent quintiles.

quote:
Originally posted by TomDavidson:
quote:
While the income gap is increasing, the standard of living gap is decreasing.
I'm not sure that's true, especially once you consider that virtually no middle-class families are single-income families anymore.
So we're holding up the triumph of women in the workforce as proof of a drop in standard of living? Heh.
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Dan_Frank
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quote:
Originally posted by Lyrhawn:
quote:
Originally posted by TomDavidson:
Stiles, it's worth noting that the video you linked contains at least three major statistics errors, the most important of which is the old saw that the bottom fifth has high mobility -- which is only true when you include college students, who traditionally have very little income until they graduate college.

---------

quote:
While the income gap is increasing, the standard of living gap is decreasing.
I'm not sure that's true, especially once you consider that virtually no middle-class families are single-income families anymore.
I think this point gets ignored a lot. It takes two incomes to sustain the same standard of living, adjusted for technological inflation, that it took one income to sustain fifty years ago.

That means we have to create twice as many jobs as we did in the past so two person households can have two incomes and get into the middle class. I feel like maybe the goal posts haven't moved, but it takes twice as many receivers to get the ball into the end zone.

Or people just realized they'd be happier if they passed the ball off to a teammate halfway down the field instead of busting their ass to run it alone.
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Lyrhawn
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Your version seems to suggest that two people are doing half the work rather than two people doing twice as much work.

That doesn't sound right.

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Rakeesh
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Dan, it feels like you're being almost deliberately obtuse. While yes, an (incomplete, ongoing) triumph for women in the workforce exists, to fact remains that the current reality of the middle class would seem to contradict your general faith jn the uplifting power of progress for human beings, at least in this case. By that I mean that progress in this case includes many more hours of labor for the same standard of living.
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Minerva
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Hayek was definitely a statist in many respects. And yes, he supported a minimum income. He saw the rent-seeking that happens in the current government starting to happen in Europe and wanted to prevent it from spreading. Once the government starts subsidizing certain things and not others, you remove the rule of law. Hayek saw the rule of law as hugely important.

Anyway, Tom, what percentage of the bottom 20% is college students? My guess is very few, but to give your claim any credence, you'd have to provide that. And I don't think Steve claimed that the college students weren't included, so I'm not sure how you think that was somehow an error.

Likewise, actually, there are a lot of income families than there were not too long ago. They are divorced/never married. I don't know the stats there either.

I'm not an economist. I know a lot of what I see in this thread is folk economics. The libertarian/classic liberal view is often debated here as a caricature. I don't really care. I understand that for the most part, reasoned debate has left Hatrack.

Tyler and Steve (who made the video) are friends, and I just want to make sure their views are represented accurately. If you want to debate/learn more, either of their Facebook pages is a good place to start. They both have a lot of intelligent economists hanging about. Steve's page is more of the "bleeding heart libertarian" crowd, but both will help you understand. The LearnLiberty videos are also quite good.

I think there are a lot of people on this board that want the best for the poor. I think it would really open your minds to see how Tyler and Steve (and their friends) propose to do it.

ETA: There is also the obvious point that the standard of living is much, much higher now than ever before. But I assume that point was just made rhetorically.

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Mucus
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quote:
Originally posted by Lyrhawn:
I think this point gets ignored a lot. It takes two incomes to sustain the same standard of living, adjusted for technological inflation, that it took one income to sustain fifty years ago.

Of course, fifty years ago, there was also a national quota of about 105 Chinese immigrants to the US and many of those in the US were economically and racially marginalised into the poorest jobs. Immigration of families was pretty much impossible, guaranteeing that single income. Work was harsh and required many many hours of work to send remittances back home.

When I look at today's single-income Chinese Americans, there's an awful big improvement, "technological inflation" or not, and usually with less work as well.

And that's if we limit ourselves to the US. If we look at the same period in China, well, there's pretty much no argument to be made that things were better.

So, I gotta say, contrary to the doom and gloom around here, I'm pretty optimistic about things going forward. I hate to bring up stereotypes, but aren't Americans supposed to be the ones infused with a "can-do" spirit and an optimistic outlook? What gives?

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theamazeeaz
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I've been saying something similar for ages when people start whining about low birth rates....
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TomDavidson
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quote:
Anyway, Tom, what percentage of the bottom 20% is college students? My guess is very few, but to give your claim any credence, you'd have to provide that.
One of my points with bringing up that "bottom quintile mobility" myth is that people who cite it as evidence of class mobility -- often in conjunction with statistics around top quintile mobility that naively or diingenuously do not compensate for income drops among retirees -- is that the people who cite that myth never actually come out and say "but, hey, a good chunk of the mobility we observe out of those quintiles is people who graduate college and quit their part-time pizza job and people who retire from their six-figure job to live on a pension in one of their three vacation homes." The idea that those stats show people born into poor families rising up out of poverty is almost a complete myth; it's practically a rounding error, and happens more rarely in the U.S. nowadays than in most other Western countries. What you're seeing instead is an enormous mass of middle-class college students being temporarily inconvenienced for a few years. Mitt Romney liked to talk about how he lived on macaroni and cheese and dumpster-diving in his college apartment. He did indeed have very little income at that time -- but was he really poor?
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Dan_Frank
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quote:
Originally posted by Lyrhawn:
Your version seems to suggest that two people are doing half the work rather than two people doing twice as much work.

That doesn't sound right.

It doesn't?

For one thing, don't I keep hearing about how we have a crisis of part time work these days and there are way less full time jobs now? (That's a sincere question. I feel I've read it claimed by some lefties somewhere but I didn't investigate the claims.)

But more importantly, many jobs are... well... easier now. To some extent we're already living in an age of automation, wealth, luxury, etc. compared to 50 years ago. So even when looking at a couple both working full time, they may both be working easier jobs for less pay.

Mucus had some good points too.

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Lyrhawn
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Out of the tens of millions of people in the work force? Part time work is responsible for much of the downtick in the unemployment numbers, but it's still comparable small when measured against the millions of jobs in America, otherwise the median national wage would be $10,000 a year.

Is part time work a problem? Yes, of course it is. But you're trying to use one problem to explain away another by making neither of them seem like a problem at all.

My parents worked three or four jobs between them when my brother and I were younger. My dad worked full time and then another part time job, and my mom bounced between full and part time, depending on what she could get, and spent the rest of her time taking care of us. It took an enormous toll on the family. After they divorced, my mom had to take a full and part time job to make up the difference in bills, and had to take out a second mortgage on the house. In the late 90s she finally got a full time job making $28,000 and was thrilled because we could finally breathe. Years later she got another job that actually allowed us some luxuries, like new clothes.

None of their jobs were overly physically backbreaking. But my parents barely ever saw each other because one worked nights while the other worked days. And my brother and I saw them both in fits and starts. I think it was a large part of why they divorced, and the family finances didn't recover really until only a few years ago. Even if the jobs themselves aren't working on an auto line or hammering up sheet rock, it's still time out of your life not spent with family or doing other things that you'd prefer to do.

Making work easier but having it pay less isn't the boon you seem to think it is.

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Minerva
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Tom, you are confusing wealth with income. The person who retires to his vacation home might decrease his income drastically. But his wealth has not changed.

For example, when I graduated from my Ph.D. program, my income quadrupled overnight. But my wealth stayed largely the same as I paid back student loans, etc.

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Elison R. Salazar
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Also because sometimes you may have students who need to be able to afford their education, might've been able with one job before and now would need to double their hours and not be able to study under that scheme.
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stilesbn
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quote:
Originally posted by TomDavidson:
Stiles, it's worth noting that the video you linked contains at least three major statistics errors

Just to clarify, I didn't post the video, Minerva did. I just fixed the link.
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TomDavidson
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quote:
Tom, you are confusing wealth with income.
No, I'm not. I'm pointing out that when people cite income statistics to imply that class mobility is common, they neglect the importance of wealth. In other words, I'm saying your sources have confused wealth with income.
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dkw
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quote:
Originally posted by Minerva:
Tom, you are confusing wealth with income. The person who retires to his vacation home might decrease his income drastically. But his wealth has not changed.

For example, when I graduated from my Ph.D. program, my income quadrupled overnight. But my wealth stayed largely the same as I paid back student loans, etc.

I think Tom's point is that a person raised in an upper-quintile family who dips into a lower quintile for a few years when they move out/go to college and then rises again as they get established in their career is not a valid example of class-mobility.
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Geraine
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Brazil has had guaranteed minimum incomes for decades, and it never brought those in poverty out of it. The majority of those living in Brazil up until I left (2002) were all extremely poor. (Usually 2 or 3 room wood houses they built themselves.)

That is beginning to change now due to their growth as an energy producer, tourism, and investing. Unfortunately the ones that will benefit the most will be those that live in the large cities of Brazil, such as Brazilia, Sao Paulo, and Rio. Other parts, such as the northern and southern parts, will likely remain the same. It is a shame really. The north and the south parts of Brazil are the prettiest, and the south in particular is where all of the beef exports come from.

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SenojRetep
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quote:
Originally posted by Lyrhawn:
Your version seems to suggest that two people are doing half the work rather than two people doing twice as much work.

That doesn't sound right.

I think you're failing to account for how hard women were working before their move into the professional workforce. It's not like they (or most of them) were spending their time in non-work endeavors. Rather they were working hard taking care of homes and children. Today they work hard in professions and pay other people to work hard taking care of their homes and children. The nature of their work has shifted from un-paid to professional, but that doesn't mean their level of work has changed.

Academic studies find that on average and across demographics, the total amount of leisure time has increased*. Add to that the fact that the nature of professional work has changed dramatically as people move out of physically-demanding work into much more intellectually and socially fulfilling work, and even if you inject a technological inflation factor (something that I find somewhat lacking in justification when we're talking about standards of living) it seems quite likely that in general people in the US are living better than they were a generation ago.

But that's not to dispute the fundamental point of the OP. The data shows that the digital, globalized economy that has emerged over the last 15 years is dominated by superstar distributions of power, market control and wealth. Whether it's Twitter followers, music sales, YouTube views, MOOC offerings, hedge-fund assets or any number of other measures, there's a lengthening tail where a very few entities or individuals control an increasing percentage of the total, even as that total increases in overall size.

It's important to note, though, that this is also a global phenomenon of most post-industrial economies, not confined to the US. As such, I doubt that specific policy changes within the US will have power to alter it in significant ways. Rather I think it's a natural and inevitable outcome of the world we have created. We should certainly think about how to adapt to this new world, but a focus on comparing how power and wealth are distributed in our early-21st century post-industrial economy relative to how they were distributed in a mid-20th century industrial economy seems to me more likely to lead us into bad policy decisions than good ones. Instead I think we should invest more effort in understanding how the economy has changed and what elements of that system can be adjusted to meet societal goals while maintaining efficiency gains.

*The increase in leisure time isn't uniform; the wealthy have much more today than they did a generation or two ago while the poor have only a little more.

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Minerva
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quote:
Originally posted by dkw:
quote:
Originally posted by Minerva:
Tom, you are confusing wealth with income. The person who retires to his vacation home might decrease his income drastically. But his wealth has not changed.

For example, when I graduated from my Ph.D. program, my income quadrupled overnight. But my wealth stayed largely the same as I paid back student loans, etc.

I think Tom's point is that a person raised in an upper-quintile family who dips into a lower quintile for a few years when they move out/go to college and then rises again as they get established in their career is not a valid example of class-mobility.
Sure, I agree with that. But I find it hard to believe that a significant percentage of the lower quintile is college students. So not much of a counter argument.
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TomDavidson
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quote:
But I find it hard to believe that a significant percentage of the lower quintile is college students.
The lowest quintile is not universally mobile. I think you'll find that a significant percentage of the portion of that quintile which is mobile is in fact made up of college students.
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Raymond Arnold
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Does anyone have citations on the percentage-of-the-bottom-quintile-that-is-mobile-that-is-college-students?
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stilesbn
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I haven't been able to find anything the percent of college students in the lowest quintile yet. The only thing I can find is this stat from Wikipedia on economic mobility.

quote:
The Pew Economic Mobility Projectís research shows that only forty percent of children in the lowest income quintile remain there as adults, and 70 percent remain below the middle quintile, meaning 30% moved up two quintiles or more in one generation.
The wording of that suggests to me that college students aren't included since it studies children from the lowest quintile who then move out. 40% is also a large portion of people who stay.
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Dan_Frank
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I don't.

But I suspect Tom is at least on the right track if not wholly right. And I bet if be broadened it from college students to young people in general he'd be even more right.

I don't really get what his point is, though. Romney notwithstanding, many college students are legitimately poor and have a real possibility of never getting out of the hole their debts have placed them in. And many young non-PhD students may not make it to the top quintile, but most of them will make it out of the bottom quintile. It's a basic trend of society that you typically start out poor and amass stuff along the way.

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Dan_Frank
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Stiles: yeah, 40% isn't a small amount. Of course even then if you go from being in the bottom 1% and then move up to the bottom 19% that's a decent improvement that gets ignored by quintiles.

Also if you do well but others do even better, the structure of the quintile can change around you. This, again, is a huge weakness of using percentage quintiles.

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TomDavidson
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quote:
It's a basic trend of society that you typically start out poor and amass stuff along the way.
Yeah, the whole idea of measuring mobility by tracking "quintile" income is pretty flawed. Not least because there is a bigger gulf between the incomes of people in the top 20% of individual earners than there is between people in the bottom 20% and people in the top 20%.
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stilesbn
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quote:
Originally posted by Dan_Frank:
Stiles: yeah, 40% isn't a small amount. Of course even then if you go from being in the bottom 1% and then move up to the bottom 19% that's a decent improvement that gets ignored by quintiles.

I think the same research, or at least the same institute addresses that too. From the same Wikipedia entry just a paragraph above:

quote:
Research by the Pew Economic Mobility Project shows that the majority of Americans, 84 percent, exceed their parents' income.
That actually surprised me a little bit that the number is so high.
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Lyrhawn
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Adjusted for inflation?
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stilesbn
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quote:
Originally posted by Lyrhawn:
Adjusted for inflation?

Yes the study was normalized to 2008 dollars. I can't imagine a study like that being done without adjusting for inflation.

You can see the report and download a pdf with more details on the Pew States Website

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Minerva
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Also, not every college student comes from a rich family. I have no idea the overall percentages, but over half of the students at my undergraduate institution received financial aid. To fairly exclude college students, you would also have to determine which percentage came from a bottom quintile family.
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Lyrhawn
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quote:
Originally posted by stilesbn:
quote:
Originally posted by Lyrhawn:
Adjusted for inflation?

Yes the study was normalized to 2008 dollars. I can't imagine a study like that being done without adjusting for inflation.

You can see the report and download a pdf with more details on the Pew States Website

I wonder sometimes how much merely adjusting for inflation really matters when we're measuring generational standards of living.

I mean, it's not just about how much the overall value of the dollar has changed, it's about relative cost of certain goods, services and lodging. Home values have skyrocketed since when my parents were younger. Food seems to be much cheaper. Etc etc.

Is there a study out there that takes into account not just how much money the different generations made, but how far their dollars actually went when converted into goods and services? It's all well and good if I make 10% more than my parents did, adjusted for inflation, but if the cost of education and housing have gone up by 1,000%, then that hasn't just eaten away my income gains, it's actually put me in a huge hole.

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Sa'eed
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Tyler Cowen links to this story on his blog:

Rent a car without dealing with any clerks.

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stilesbn
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quote:
Originally posted by Lyrhawn:
I wonder sometimes how much merely adjusting for inflation really matters when we're measuring generational standards of living.

I mean, it's not just about how much the overall value of the dollar has changed, it's about relative cost of certain goods, services and lodging. Home values have skyrocketed since when my parents were younger. Food seems to be much cheaper. Etc etc.

As I understand it, a large portion of the CPI calculation of inflation is rental rates/equivalent home owner rental rates. In this short run rental rates vs. real estate can diverge but they converge in the long run.
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Dan_Frank
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quote:
Originally posted by Lyrhawn:
quote:
Originally posted by stilesbn:
quote:
Originally posted by Lyrhawn:
Adjusted for inflation?

Yes the study was normalized to 2008 dollars. I can't imagine a study like that being done without adjusting for inflation.

You can see the report and download a pdf with more details on the Pew States Website

I wonder sometimes how much merely adjusting for inflation really matters when we're measuring generational standards of living.

I mean, it's not just about how much the overall value of the dollar has changed, it's about relative cost of certain goods, services and lodging. Home values have skyrocketed since when my parents were younger. Food seems to be much cheaper. Etc etc.

Is there a study out there that takes into account not just how much money the different generations made, but how far their dollars actually went when converted into goods and services? It's all well and good if I make 10% more than my parents did, adjusted for inflation, but if the cost of education and housing have gone up by 1,000%, then that hasn't just eaten away my income gains, it's actually put me in a huge hole.

It's a different world. In important ways.

If you're going to try to factor that sort of thing in, to be fair, don't you also need to factor in all of the things you have access to that they didn't?

How much was a computer? A cell phone? High speed Internet? Have you taken advantage of any other modern technology?

Some of that stuff existed then. Lots more didn't. Figure out how much they would've had to pay for these things. If something simply didn't exist then you have to pick an arbitrary price for it. I recommend taking whatever the price was when it was first invented, and then adding/multiplying some arbitrary amount for every year it takes before we reach its first appearance.

If your goal is to see how screwed the average poor person is today... Well, good luck with that. I suspect any assessment that gets as granular as you're wanting is going to show the opposite.

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Mucus
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That "if I make X% more than a particular past generation did, adjusted for inflation, but Y has gone up Z%" example also works the other way around.

My education may cost more, but my grand-parents may have been completely barred from being educated alongside white people in the first place. A wedding may cost more, but I don't have to worry about getting lynched or having a burning cross show up on my lawn if I marry the "wrong" person. A house may cost more, but I don't have to worry about a racist government confiscating the house and sending me to a concentration camp without compensation.

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