We’ll ask why the US economy has failed the middle class.

You need to ask?

Try 8 years of Bush, a congress that does nothing.
The education system. People going to the shopping mall instead of paying attention and protesting at the mall in Washington.

How about the compete lack of any politician coming up with any ideas except drilling for more oil and massaging people with tax breaks.

I could go on, but hey it’s your show.

The economy is defined by immortal corporations and not by living human beings. Even a booming economy leaves people behind. Put people ahead of profits — the middle class thrives on the success of the poor not the rich.

The most efficient lifeline for the middle class and small businesses is HR676, Single-payer health care.

I have to take issue with the assertion that middle class is hurting because “home prices are still way down.” To me the home prices are still way up. Has anybody compared median prices with median income and median rents in Boston area lately?

Do the home owners who bought within the last 8 years represent the entire population of this country? What about the rest of us completely priced out of the market whose savings are eroded by low interest rates and high inflation? Can somebody discuss the plight of a saver in the current economy?

A big challenge in the next ten years, with the introduction of national health insurance in the US, will be the further erosion of organized labor’s power. Removing the “job lock” feature of health care partially provided through employers will probably increase overall wage and salary incomes, but will make so-called middle class incomes quite a bit more variable. Can you have Prof Temin comment on the unintended consequences of national health insurance on wage and salary income, and lowering the urgency of union membership?
–
Joseph Combs
Rochester, NY

Who is this bozo from the Cato institute? Get someone who actually knows what’s going on!! He’s ridiculous…

Brink Lindsey says our living standard has improved since 1980. NOT SO. I was just out of college & my wife & I bought a 2-family house in Medford, a modest city-suburb of Boston. It cost less than 3x my relatively low salary as a grad-student researcher in a university engineering lag. Before the recent price drop, it would have taken 12+ such salaries (at today’s rates) to buy the same house.
Sure, gadgets are a lot cheaper (I design computer-based “stuff”), but all the basics point to a drop in our purchasing power.

Recently read the biography of Louis Brandeis by Philippa Strum. Brandeis was as much an economist as he was a legal brain and jurist. He spent much of his early career as an arbitrator and advocate for the working middle class.

He believed that large corporations, which represented an imbalance between labor an capital, were the main problem. He advocated that balance between the interests of workers and owners was essential to fairness. He believed strongly that the solution was small business.

Do Brandies ideas apply today? Is so how; if not, why not?

Whether or not middle income has gone up or down, the risk factors to individuals have gone up as evidenced by the costs of health care relative to income and the deterioration of health insurance coverage. A leading cause of bankruptcy is the cost of unanticipated illness. Another example would be the cost of higher education and the amounts students borrow relative to the probability they will graduate or find a job with income to support them and the debt.

Hi,

What I am hearing from Senator Obama is very encouraging because he is talking about rebuilding America’s terribly neglected infrastructure. If we look at our railways, ports, dams, roads and airports we can see that we are WAY behind Europe and falling fast. The approach of creating more public jobs to do this work has been tried before - and it worked.

Most people consider FDR our greatest president. It’s not radical . It’s conservative, Keynesian economics. Advantages would be jobs, training, improved infrastructure, better public transportation, and less dependence on foreign oil.

My family’s standard of living is lower today than it was when I was a boy. We can only afford to rent a smaller house than my parents owned in my childhood. I’m employed in the same field that my father was employed. Just because we have some electronic gadgets today that I didn’t have in the past doesn’t change the fact that our standard of living is lower.

I’ve been trying to get a unionized job since I entered the workforce. Unionized jobs are the most competitive to try and get because those are the jobs that everyone wants. No one tries to unionize non unionized workplaces because they know they will be fired and have no protection from the government.

I am with CSEA-SEIU Local 2001, based in Hartford which represents about 25,000 active and retired workers here in Connecticut, and we our supporting labor law reforms that would tackle income inequality and rebuild the shrinking middle-class…

Specifically, we are supporting the Employee Free Choice Act, which, once passed, allows a simple majority of workers to demonstrate their free choice to join a union by signing authorization cards.

CATO and their network of state-level “free market radical” think tanks have been smearing the intent of this bill since the Congress took it up last year — in fact, the nationwide anti-worker network is planning to shell out nearly $100 million this fall to maintain the status quo and defeat candidates committed to real workplace democracy.

Let’s hope the voting public doesn’t buy their rhetoric!

Great show and stimulating discussion.

I think a point that has been missed is the corporate baiting and government collusion that was done to inflate the housing market - and deceive the uninformed but ambitious middle class.

The deception is that our economy needs to grow - the only reason it needs to grow is because politicians have overspent themselves to stay elected. This purely psychological pressure, that is run with a heavy PR and legislated backbone is the only thing holding American’s down. Remove the upward pressure from government spending/taxing cycles and I think you’d see the American economy jump with innovation - but not necessarily growth.

This is a hard concept to grasp - but measuring success by growth is a trap for unsustainable, un-natural pressures. The american economy is and should be a system promoting freedom. I should be free to choose a smaller standard of living than my parents - and I shouldn’t be forced to earn more, buy more, and get more debt. We need to focus policy to promote personal choices for happiness - even if that’s a smaller economic footprint. If we don’t change the goal from simply more - to better and personal - our economy will stall and fail.

It’s a 50’s notion that, ‘more is better’ and a notion that my generation doesn’t subscribe to. I hope Peter Temin can join the 21st century.

I have to take issue with the assertion that middle class is hurting because “home prices are still way down.” To me the home prices are still way up. Has anybody compared median prices with median income and median rents in Boston area lately?

Alex is absolutely correct. Home prices shot up so ridiculously in the late 90’s and early 00’s that they are still way higher than they “should” be comparing their prices to other items in the economy. They still probably have another 10-20% to fall just to get into reasonable territory.

A big challenge in the next ten years, with the introduction of national health insurance in the US, will be the further erosion of organized labor’s power.

I doubt we will see national health insurance. The countries that have systems like that typically spend 8-9% of GDP of healthcare. The US spends closer to 15% so when politicians look at the cost they’ll retreat - especially given the HUGE U.S. budget deficit.

What I am hearing from Senator obama is very encouraging because he is talking about rebuilding America’s terribly neglected infrastructure. If we look at our railways, ports, dams, roads and airports we can see that we are WAY behind Europe and falling fast. The approach of creatnien more public jobs to do this work has been tried before - and it worked.

Not in modern times, it didn’t! Japan tried it to exit from their depression in the 1990’s and it was a total failure, plus it drove up their debt to 104% of GDP. The difference between today and FDR’s time is that infrastructure then was low-skill manual labor - which was most of the US workforce. Today infrastructure is a lot less labor intensive and also most of the US workforce does not do that kind of work.

The New Deal may have placed FDR on the great presidents list, but it was not so much a response to the depression as a response to record turnout for leftist parties in 1932 and the resulting popular support for such ideas.

Obama is a Wall Street candidate, doing his part to maintain the USA’s momentum to the right.

The deception is that our economy needs to grow - the only reason it needs to grow is because politicians have overspent themselves to stay elected.

It needs to grow because our population is growing. We need to create at least enough wealth so that there are enough jobs to go around and we don’t have more and more people trying to divide the same size economic pie - each gtting ever smaller slices.

Also, most people WANT to improve their standard of living. They want a nicer house or better neighborhood, better vacations, some money stashed away for economic security, etc.

I should be free to choose a smaller standard of living than my parents - and I shouldn’t be forced to earn more, buy more, and get more debt.

How are you “forced” to? You can work part-time, share an apartment with friends, live cheaply, etc.

It’s a 50’s notion that, ‘more is better’ and a notion that my generation doesn’t subscribe to

What generation do you claim to be speaking for? Show us a generation that doesn’t want more. I think your views are quite unusual.

THANK YOU - THANK YOU - THANK YOU ON POINT

For doing a show on economics. Please please please do more!

I especially enjoyed hearing the exchange twixt, I think it was, Professors Temin and Lindsey.

And, yes we should spend some time on the minutiae. For therein lies the very thing.

The american economy is and should be a system promoting freedom.

My wife and I are, admittedly, fairly affluent, but I don’t understand your equating near-poverty with “freedom”.

1. better-paying jobs tend to also have more freedom. As a design engineer I can work pretty much whatever hours I want as long as I deliver my designs and they’re good. But someone who works as a sales clerk has to be there when the store is open so they can’t stay home, say to take care of a child or meet a contractor.

2. Because we have cars we are free to go where we want, when we want. People who are forced to use public transit have to rely on the schedule and route of the bus.

3. Money gives you the freedom to choose your lifestyle - urban or suburban, cook your own meals or eat out; grow your own food or buy at the store, etc. Also, you can choose what hobbies to do, where to travel, what clothes to wear, etc. Basically people with lots of money have the freedom to live like those who do not, but not the other way around.

I agree that there’s a point beyond which more money does not enhance happiness or well-being. I’m probably at that point - I don’t need any MORE money than what I earn - and in fact I only live on about 1/3 of my income - 1/3 goes to taxes and 1/3 is for retirement savings. But I don’t see any benefit to having less.

Q: “…So why has that rising tide left so many boats behind? Why are wages flat with the biggest share of growth going only to the very rich?”

Step back about 120 years: “Robber barons” like Andrew Carnegie and John Rockefeller dominated workers and built corporate empires and a portion of profits were spent to corrupt politicians to preserve their fiefdoms. Along came bloody labor wars and later the depression and FINALLY both THE PEOPLE and policians united behind equitable reforms to fairly distribute the profits among shareholders and workers. Of course USA had no real competition from Asian countries and unorganized European countries (the European Union didn’t exist at that time).

60 years ago: In the wake of WWII, the only industrial economy left literally standing (not bombed to smithereens) was USA. When the rest of the world needed a shovel to dig out from the war’s rubble, they bought it from USA. Both US businesses (both big and small) thrived. How could we not? We were the only functional industry in the world. Lots of money being made and with the FDR/New Deal protections in place, workers thrived.

28 years ago: The Reagan Republican Revolution combined with fat, bloated, greedy politians from both parties begin the slow decline of middle class advancements. This was largely due to the NEW competition from EU, Japan, and the other Pacific Rim Tiger economies (Korea, Singapore, Malaysia). Our new Robber Baron class now exploits foreign workers in the same manner as we did 120 years ago. Our standard of living goes down as jobs, money and opportunity migrate to the newly exploited economies. These “old jobs” aren’t coming back…. only new jobs developing new technology (patent protected) like green tech and new energy will propel our middle class again.

Don’t look to U.S. politicians to understand, let alone solve, the global modern day robber baron model. Aint gonna happen. Press our politicians for new equitable opportunities for our innovators (small entrepreneurs) to exploit NEW technologies that could lead to new manufacturing jobs and higher wages / standard of living.

There is no objective way for economists to determine whether the middle class is better or worse off. It is a subjective judgement that can’t be measured.

As an example, some here have cited home prices as a reason the middle class is worse off. Obviously, there are two sides to this. Many middle class homeowners have enjoyed great benefit from this, while first time buyers have a harder time getting in. Conversely, it is much easier for a college grad to find a living wage professional job than it was when I graduated in the early 80’s. There are hundreds of such tradeoffs, and it is impossible to numerically adjust for them all.

What is true is that technology makes it far easier to take rare talent, and leverage it far beyond the possibilities of the past. This creates severe income inequality. There may be other things going on politically to make this worse, but it was unavoidable for the most part.

Tom,

I’m glad a lot of listeners spoke about greed, wealthy and how economics in the US has decreased our standard of living compared to the rest of the world.
The Problem is the centration of wealth world wide, not just here in the United States. Wealth looks now more than ever to exploit people. It is a cleaver lie how a corporation(which really a representation of the few that are wealthy connected to this corporation) goes into an area where workers will produce the same quality goods for a couple of dollars a day and this same corporation says-”Look they only made one dollar a day before we gave them jobs for two dollars a day!”. This is what is accepted as an ethical business practice in today’s “New World Order”.
Truth is, the wealthy in that corporation make multople times as much by EXPLOITING this situation then try to have the rest of the world see it as a great thing.
The United Nations needs to become stronger so that a system can be worked out where, in effect, a business is rewarded for improving its product thus selling more of it or sells more of its product than its competitor all else being equal.
Without THE ABOVE being the guiding rule, then this world of ours is in big trouble. Laizzez Faire economics ultimately leads to authoritarian rule. We stopped that in our country when we had representation that recognized this fact and our economy became strong. Now the world has to do the same or we could be led to the apocalypse.

Doug,

It is easy to simply assert that exploitation is on the rise, or that standards of living are going down, but I would argue otherwise. It can feel that way, particularly during an economic downturn, but if you read a little history, it will all come back to you. It wasn’t so easy twenty years ago, either. There was plenty of exploitation going around then too.

Inequality is on the rise, but it isn’t a zero sum game. It really is better to make two dollars a day than one even if it is unfair.

It is a subjective judgement that can’t be measured.

Why do you think subjective judgements can’t be measured?

The preference for, say, iPod over, say Zune, is also subjective. We can speculate about why people prefer iPods - there are plenty of objective differences between them and anyone can make a list of candidate reasons - but there is no scientific way to know what the real reasons are, or whether it’s something ineffable like iPods just being more “cool”. But the fact that people prefer iPods is easily measured.

Likewise, if we want to know whether the middle class is better or worse off we simply have to ask them.

I doubt we will see national health insurance. The countries that have systems like that typically spend 8-9% of GDP of healthcare. The US spends closer to 15% so when politicians look at the cost they’ll retreat - especially given the HUGE U.S. budget deficit.

We spend more than any industrial nation on health care and have the worse results.

So the logic here is because we spend 15% of GDP or more on helthcare we should not do it?

The point would be to lower this to about 8%.

We are the only industrial country in the which people go bankrupt from illness.

One this is apparent, if anyone watched Charlie Rose over the last two days he had on some economist and Tom Friedman. Between both shows some interesting points had been made in regards to the economy.

One scary scenario was that 40% of home owners might be foreclosing before the housing crisis levels out. 40% of all home owners in this country.

One the down size of this panel was the notion that we, America is now in a more or less permanent downward spiral and that 90% of us will have lower standard of living.

The other interesting comment was from Tom Friedman and this came in a question, do we as a nation want to lead in the next revolution which will be, and has to be energy technology. Or will we keep doing what we have been doing and become a Banana Republic.

One thing Tom said that was right, this has to come from government or industry wont do a thing.

Case in point, congress still has not passed the clean energy tax credit that’s set to expire at the end of 2008. This is dumber than dumb. Without this there will be no investment in renewable energy.

What is wrong with these people who work in Washington?

Now some might say this is fair as the industry should stand on it’s own two feet, but I will point out that the oil industries get the same kind of tax breaks and they don’t need them.

So before you start launching into a tirade on this think about what kind of future do you want for yourself and your children and grandchildren.
A healthy vibrant economy based on lead edge technology and growth or a Banana Republic.

this corporation) goes into an area where workers will produce the same quality goods for a couple of dollars a day and this same corporation says-”Look they only made one dollar a day before we gave them jobs for two dollars a day!”. This is what is accepted as an ethical business practice in today’s “New World Order”.
Truth is, the wealthy in that corporation make multiple times as much by EXPLOITING this situation then try to have the rest of the world see it as a great thing.

It IS a great thing - they don’t need to be convinced of it. China is enjoying 8-10% GDP growth and other Asian countries are all clamoring for the same arrangements. For the first time in its history China has a large and growing middle class.

Anyway, the topic of this discussion is the American middle class, so how does your thesis relate to that?

What struck me as odd is that none of this was discussed in this program.

Both Peter Temin, and Brink Lindsey seemed to me to live in ivory towers and seem to drink to much kool-aid.

Please, get some people who are more in touch with the reality of what si going on here.

IT’S THE VALUES STUPID!

Note: Just a turn of phrase, not intended for anyone specifically.

The love of money is the root of all evil.

We spend more than any industrial nation on health care and have the worse results.

So the logic here is because we spend 15% of GDP or more on helthcare we should not do it?

I didn’t say anything about “should”; I’m just making a prediction that we won’t.

The company I work for makes products used in science and medicine and several co-workers are MD’s so I get to see these issues up-close and personal, not to mention the fact that my wife and I have had some pretty serious and expensive medical problems. Furthermore my wife is a chamber musician so our social circle includes lots of MD’s (don’t ask me why so many amateur chamber musicians are MD’s but they are!) so this topic comes up a lot.

Basically, getting the cost of healthcare to even remain constant, nevermind trying to lower it, is a herculean task!

I think a single-payer health plan might shave as much a percentage point off of medical costs because it would simplify the back office. But Obama’s plan would create a National Health Insurance Exchange to oversee the buying of private insurance, so the expensive back office costs would remain.

Obviously it would be great to get healthcare costs down to 8-9% like most EU countries have, but they exist within a totally different economic and social culture so we’d need changes that go way beyond healthcare to achieve it, and no one is proposing such changes.

Also, to some extent the EU is living off of the US - for instance they place tight caps on drug costs so they are not very profitable. The drug companies make more of their profits in the US where drugs cost more. But - and I say this as shareholder in a couple of pharmaceutical co’s - those profits are used for R&D. Drug development is bigtime expensive. If the cash-cow US puts caps on drug prices I’m guessing we’ll wee fewer new drugs in the pipeline.

Peter,

OK, my words were imprecise. Of course you can ask people, and measure the percent who say they are better off.

I was attempting to argue that economic measurements of whether the middle class is better off, which aren’t portrayed as opinion polls, but as estimates of wage changes and the like, aren’t really much more than complicated versions of an opinion poll.

Whether we think we are better off or not is highly influenced by our expectations and sensibilities. I think people had lower expectations 25 years ago.

The love of money is the root of all evil.

No it isn’t. The Holocaust wasn’t caused by the love of money, Stalin didn’t kill millions of his own citizens for the love of money. The terrorists who committed 9/11 didn’t do it for the love of money. Pol Pot, Rwanda, etc, etc

Furthermore the topic here is the fate of the American middle class. Wanting a more comfortable home, financial security in retirement, or affordable health care do not constitute “love of money”.

“Not in modern times, it didn’t! Japan tried it to exit from their depression in the 1990’s and it was a total failure, plus it drove up their debt to 104% of GDP.”

That’s not a perfect analogy. Japan had stagflation and the central bank cut rates down to zero. This led to private capital, which invested in the country and drove the boom, to leave the country and invest elsewhere. This offset some of the government investment.

Furthermore, any investment, including those made by government, should generate some kind of return. The Japanese were extremely undisciplined in this regard, building “bridges to nowhere” (sound familiar) and freeways between small town.

So just because it didn’t work there doesn’t mean it wouldn’t work here.

Peter Nelson wrote:

“Really, Frederic C, your banalities are tiresome.”

Not nearly as much as your endless, droning, holier-than-thou pontifications, Peter, which is why I only occasionally read the comments anymore and no longer bother to post here. Your comment above, regardless of the content or execution of Frederic’s post, cried out for it.

I shall now exit the Peter Nelson blog site, likely for good. Buh-bye, Tom…

My wife is from Japan and her father was president of a division of a major corporation.

He is retired now and is very comfortable, but he lives in a tiny modest apartment. Drives a mid sized Toyota.
Lives on a fixed income that is more like that of a retired mid manager than a CEO.

His salary was about 20 times the lowest paid worker in the company. Growing up they lived in company housing.

His equal in this country makes a 100 times more than the lowest paid worker. In some industries it’s 500 times!

What is wrong with this picture?

Japan is hardly a country that could be called lacking in innovation in the industrial sector.

“Drug development is bigtime expensive. If the cash-cow US puts caps on drug prices I’m guessing we’ll wee fewer new drugs in the pipeline.

Posted by Peter Nelson, on September 10th, 2008 at 1:45 pm EDT”

There will be drugs in the pipeline. The way drug discovery is done has changed radically over the last couple of years but most of big pharma doesn’t get it. The main reason their R&D is so high is because they keep swinging for the fences and trying to develop the next blockbuster drug.

With the advances in the tools used to study genomics and proteomics, they should be looking at more targeted therapies, i.e. personalized medicine. Anyone really interested in understanding this should listen to the plenary session here:

http://www.bio-itworldexpo.com/

And Mark, don’t let Peter drive you off. He’s widely regarded as a WFA (World’s Foremost Authority) here: someone who thinks that he knows everything about everything when he really know very little.

I don’t know what people are whining about. People in the middle class should try to look on the bright side. What’s there to feel good about? One word: Sarah Palin. Think of all the good news we’ve learned about her so far:

1. She is apparently not a secessionist, like her husband. She does not believe that Alaska should spark a second civil war by seceding from the union.

2. She does not believe that the miracles of Jesus, as documented in the New Testament, should necessarily be taught in public school, although the creation story should be.

3. She can field dress a moose, and she enjoys shooting wolves from airplanes.

4. She believes abortion should be illegal under all circumstances, even in cases of rape or incest, but she believes that Jesus loves all of us if we’re Christians.

Cheer up, America! And have a nice day.

In a nutshell, our problem is that we have become serfs of the Corporation. Big Business has become our Big Brother, who knows too much about us!

I believe that most people have little reticence about doing wrong or the unethical IF they think they can do so with impunity. Washington and Wall Street have granted Big Business this impunity/immunity, thus, the green light to do whatever they like in the name of profit (ex. charging usurious credit rates on credit cards; refusing to pay legitimate health care claims, displaying NO transparency regarding accounting, computation of various customer fees, and the like) so that shareholders
are the arbiters of what is allowed in the marketplace. And everything and ANYthing is allowed in the market place!

This was a terrific discussion of a most important topic. It was quite a coincidence to turn on the radio hear Peter Temin, just as I was reading about his study in a book!

The voice I missed in this discussion is, in fact, the author of this new book, “Unequal Democracy,” Larry M. Bartels. “This book reports the results of a six-year exploration of the political causes and consequences of economic inequality in America.” I quote the first sentence of the preface.

This is obviously a topic of vital interest and importance. I hope we can further this discussion soon.

Mark- I don’t see where the word was used in this forum other than in your quote of Peter so I won’t make a judgment about Peter vis a vis the use of loaded language.

Since I only see that quote within your comment, I can assume that it was either deleted, or that you made it up.

Given your hostility towards Peter, I am leaning towards the latter.
–
I know Peter. It’s a phrase. A phrase can’t encapsulate the etiology of evil, of man’s inhumanity towards man.

Money alters our valuation of resources. Though money doesn’t perish like food, we feel there is a difference between a savings account and hoarding food while others starve to death.

Despite my concern that I will elicit a knee-jerk reaction by questioning capitalism and the dominant paradigm, I say that I just don’t think that an economic conversation is complete without questioning the merits of capitalism compared to other systems throughout history.

Frederic, the post was in fact deleted or edited, either by the moderator or by the poster, if that is still possible as it once was on this board. I did not “make up” the quote as you suggest, but if you want to believe so, be my guest.

So Mark. What’s the deal with the middle class?

They make the rich feel good about themselves, as in glad I’m not them.
They give the poor something to look forward to.

They, the middle class are scared that they will become poor. Hence stuck in the middle…

I understand the U.S. economy and world economy are all intertwined. But some where there is a line to draw. We could all be part of this mortgage fail out, but all I know is I, myself as an individual, didn’t make that conscious choice, but it’s conscious choices made by the bankers, mortgage companies, the brokerage firms and the government, this is where I have problem with as a taxpayer.

Excuse me for my not so savvy financial knowledge, I do have a question. When the government said the first lost would be borne by the shareholders, then the last resort is taxpayer. What if the people that benefit the most from all the profits made before, is not a shareholders, like the bankers, mortgage companies, the brokerage firms. Shouldn’t they share some burdens to bail out Fannie and Freddie? It would really help if they can spit out some of their gigantic profits, don’t you think that would really help? Why are they so untouchable? Is it fair to ask those people to share some burdens before the government ask taxpayer to bear burdens?

I say that I just don’t think that an economic conversation is complete without questioning the merits of capitalism compared to other systems throughout history

I don’t disagree at all; I just wish someone would provide some concrete alternatives.

“History” covers a lot of territory and what works in a modern industrialized society might be very different from what worked in earlier agrarian societies, when people lived in small communities and knew each other face-to-face and shared a common culture.

One thing capitalism does well is organizes vast resources - money, talent, labor, etc, across diverse cultures. If we consider what goes into an iPod, it’s quite incredible. A C-T scanner or an automobile even more so.

In modern industrial times we’ve really only seen two models - socialism and capitalism. Of the two I prefer the latter but almost all the “third ways” ever implemented met somewhere in the middle (e.g., Sweden). So I can’t escape the nagging feeling that there must be something not on that continuum, but I can’t imagine what it would be.

Peter Nelson,

You shouldn’t use bold print in your posts.

Use diction, word order, and sentence structure to communicate your ideas.

(As a matter of fact, my philosophy teacher taught us that, too. And he wasn’t lame at all.)

It would have been nice to hear host address the issue of Global Labor Arbitrage and its disastrous effect on the American middle class.

Global Labor Arbitrage is an economic phenomenon where, as a result of the removal of or disintegration of barriers to international trade, a nation’s economy and labor market essentially merges with other nations’ economies and labor markets producing an averaging out of the wages paid to labor and, consequently, of nations’ standards of living. Jobs may move to nations where labor is relatively inexpensive and/or relatively impoverished labor may move to nations with higher prevailing wages. Two common barriers to international trade are tariffs, which are politically imposed, and the costs of transporting goods across oceans and long distances. With the advent of the Internet, the decrease of the costs of telecommunications, and the possibility of near-instantaneous document transfer, the barriers to the trade of intellectual work product have almost completely disintegrated.

Oftentimes, a prosperous nation (such as the United States) will remove its barriers to international trade, merging its labor market with those of relatively impoverished nations (such as India, China, and Mexico), resulting in tremendous economic stress on the relatively prosperous nation’s lower and middle classes. The end result is an almost instantaneous dramatic increase in the supply of labor relative to the demand for labor which means a decrease in the price point (wages, standard of living) where supply and demand curves intersect. This means that the owners of capital will be able to keep a relatively larger amount of the value of a laborer’s work product, resulting in the enrichment of the owners of capital and (to a small extent) laborers in the impoverished country at the expense of laborers in the relativley prosperous nation. In the United States, this could mean the extinction of the American middle class.

Global labor arbitrage can take many forms, including but not limited to:

Foreign Outsourcing. (Sometimes also known as Offshore Outsourcing or simply Offshoring.) Capital moves to nations with relatively impoverished labor for the purpose of producing goods and services for export to other markets. The classic example is the case of a factory or office closing in the United States and then moving to China for the purpose of producing goods or services at lower labor costs for export back to the United States. This decreases the supply of capital in the United States, increasing its supply of labor relative to its capital, often resulting in layoffs and increased unemployment and underemployment in the U.S. For example, in the United States, the amount of manufacturing jobs has decreased while the importation of manufactured goods from other nations has increased (along with the U.S. trade deficit).

Importation of Foreign Labor Using Work Visas. Labor, often skilled and educated, migrates to the United States on a probationary “guest” basis. This has the effect of increasing the supply of labor in the U.S. job market. In America, two of the most common foreign work visas are the H-1B and L-1 visas. The use of foreign work visas to import skilled labor can often result in layoffs, decreased wages (supply and demand), unemployment, and underemployment amongst people in the same fields. For example, importing foreign computer programmers into the U.S. can result in layoffs, lower wages, unemployment, and underemployment for displaced American computer programmers. It also removes computer programming as a field for which displaced Americans can retrain and reeducate. This form of global labor arbitrage tends to most directly affect a nation’s middle and upper middle classes. Some American programmers have even been made to train their H-1B and L-1 replacements in order to get severance pay. Victims sometimes quip that, “My job was bombed by the H-1B.”

Immigration — both Legal and Illegal. In this form of global labor arbitrage, relatively impoverished labor moves towards capital in relatively prosperous nations. This tends to increase the supply of labor relative to capital in the prosperous nations and decreases wages, according to the laws of supply and demand (of and for labor). Sometimes the immigration occurs illegally. This form of global labor arbitrage tends to affect the poor and the working classes. The mass immigration (especially illegal immigration) of impoverished people into a relatively prosperous nation also has other effects, including but not limited to the costs of providing education, health care, and a criminal justice system to the impoverished immigrants and/or to the Americans that they have displaced from formerly middle class jobs, such as construction. For example, in the United States illegal immigrants have decreased the wages paid to Americans in the field of construction while increasing local governments’ and hospitals’ expenditures for education and health care for the uninsured.

Population Explosion. Population explosion can occur as a direct consequence of mass immigration and can have the effect of increasing the amount of people relative to a nation’s limited supply of land and natural resources, which might properly be regarded as “resource capital”. Although it may not technically be a form of global labor arbitrage, it may be a direct result of it. As a result of an increased population, the supplies of land and natural resources relative to the demand for land and natural resources decrease, resulting in a higher price point for a nation’s populace and thus a decreased standard of living, especially for the lower and middle classes.

Maintenance of a Trade Deficit by Selling Land and Capital Assets. As a result of Foreign Outsourcing, foreign labor produces goods and/or services for import into the United States without other countries purchasing an equal value of goods and/or services from the U.S. This could result in the restoration of a balance of trade or it could result in the sale of American-owned land and capital assets to people in other countries. In the case of the United States, it appears that we are exchanging our land and capital assets for ephemeral goods and services which will ultimately result in our collective impoverishment. The trade deficit could be the result of the other three forms of outsourcing or merely the purchase of goods and services produced by foreign-owned businesses.

The American media has sometimes erroneously referred to this practice as “insourcing”. In actuality, most of these alleged cases of insourcing have merely been instances of a foreign business purchasing an American company in order to enjoy the profits made by the American company as opposed to opening a new production facility in the United States for the purpose of exporting products back to its home country. Sadly, the news media often mistakenly implies that this constitutes an increase in American employment when in reality only the ownership of a business has changed, ironically symbolizing increasing American impoverishment.

re: one guest’s assertion that “Top talent gets top dollar.” Meaning talent in the important arenas of entertainment, sports, and “finance” - money production. Sure, if the best nurses, the best public school teachers, the best social workers, the best cops, the best waiters and waitresses, the best bus drivers, etc, were compensated the way baseball players were, there would be a little redistribution of the big pie.

Also, great comment from Frank the Underemployed Professional.

With Fannie and Freddie almost every major bank in the world bought bonds. These in turn gave them capital to buy mortgages. A lot of them.

In simple terms the bonds are safe, the stock holders lots their shirts. Freddie and Fannie had nothing to do with Wall Street firms such as Bear Stearns unless they bought bonds or stocks.

Like I said before this is complicated international finance. It’s how the system works. It’s how it worked for years. I’m not in the financial arena, but I have been reading a lot about this and I was not aware of the implications until a few days ago that if these two went down, we go down with them.

Everything stops, no loans for businesses, trading, student loans with stop. No one would be able to get a dime for anything. In short we don’t have control over this. Just as people in the late 20’s and 30’s had no control over the Great Depression.

Frank the Underemployed Professional is wrong about the H-1B and L-1 visas. The people how get these are sponsored by companies and from what I understand there is a shortage of good programmers and higher end professionals and this visa, which is not easy to get. To say that it puts people out of work is not really true as it cost the companies more money in legal fees and so on.

The statements in Frank’s long post is pandering to xenophobia.

I meant to say that the visa is not easy to get and it’s not a cause of job losses. Sorry I was typing to fast…

I agree with earlier posters that it’s great to hear economists discussing issues related to middle class security.

Economics is really more interesting than it gets credit for, if you’ll pardon the expression. I think many times we hurry for the discussion topics that buzz with emotion or make an immediate splash (race, sex, abortion, God, guns, etc.).

Programs like this, while they don’t necessarily dwell on the immediate political concerns of the day, are ultimately useful when thinking about — thinking about — which political party or policies to support.

Excellent show. As someone with no special knowledge of economics, I’d like to hear more discussions of these topics.

Comment to Frank of “Posted by Frank the Underemployed Professional, on September 10th, 2008 at 7:17 pm EDT”

Nice post, thanks. You’ve raised interesting points referred to as “Global Labor Arbitrage”, a clever variation of the standard arbitrage practices. I must ask though whether you authored the points (both here and on Wikipedia ) or simply copied them. see http://en.wikipedia.org/wiki/Global_labor_arbitrage

Citation others work is still the right thing to do (as is taking credit for one’s own thoughts).

Importation of Foreign Labor Using Work Visas. Labor, often skilled and educated, migrates to the United States on a probationary “guest” basis. This has the effect of increasing the supply of labor in the U.S. job market. In America, two of the most common foreign work visas are the H-1B and L-1 visas. The use of foreign work visas to import skilled labor can often result in layoffs, decreased wages (supply and demand), unemployment, and underemployment amongst people in the same fields. For example, importing foreign computer programmers into the U.S. can result in layoffs, lower wages, unemployment, and underemployment for displaced American computer programmers. It also removes computer programming as a field for which displaced Americans can retrain and reeducate.

This is a topic I’ve had direct experience with in my industry since I’ve been involved with various interviewing and recruitment activities.

We bring in lots of foreign engineers and scientists, mostly from India and China. We also offshore significantr parts of our software development (I’m a software design engineer).

The simple fact is that we cannot find enough qualified Americans! I’ve been on projects that languished because we couldn’t fill openings. My current company employs math and physics PhD’s, as well as various engineering specialties.

Our FAILURE to import foreign labor is more likely to result in layoffs and job losses because it removes skills that we need to compete in a global marketplace.

This is the thing that many protectionists don’t get. Skilled foreign workers and cheap foreign manufacturing make many US jobs possible. Apple and Dell and HP would not be able to produce the successful, affordable products they make without offshore manufacturing because no one would be able to afford their products. And then there are the jobs produced by export. My company has thousands of US jobs - mostly white collar and skilled manufacturing. But we export about 60% of what we make. That would dry up if the US went protectionist.

We’re in a global economy and we have to learn ti succeed in it.

I listened to the program this evening featuring the experts from Harvard and the Cato Institute. I felt they were two ivory tower academicians out of touch with the real world - living in the world of books. They completely MISSED the underlying forces in play. While debating the “competitive factors in the free (US) market” and why the outcomes were so different from the past they MISSED that the “markets” themselves have changed. We do not have a US market (only) for Capital, Human Resources, Manufactured goods, commodities…instead we are now players in a Global Market for each item. That is why the old policies, theories and remedies will need to be dramatically overhauled to provide our citizens with what they deserve by Govt Policy. That is my perspective as an NPR listener….not a trained economist!! Thanks for listening.

I’ll try this again without typos. Sorry about that.

As it is with all shifts in markets some people are hurt and some gain. Look up the industrial revolution, it made major shifts in the demographics of Great Britain and in this country. We went from an predominately agricultural society into and industrial one pretty quickly.

Now that’s gone and we need to develop some new ideas.

People used to light their houses with whale oil only 140 years ago, give or take a few. Now we have halogen lamps.

Those visa’s are for highly trained skilled people and it’s a fact of life. By the way there are a lot of young Americans working in India and China now as well.
So what Frank the Underemployed Professional is saying is not holding true for smart young people.

We are importing nurses from the Philippines because there is shortage here. We have taken so many of the health care professionals out of that country that now they have shortage.

Maybe Frank needs to change professions, or move to China.

I think most people don’t realize that even though they want to be rich, the economic policies for the rich are not necessarily good economic policies for everyone else - most of us.

Bush economic policies, supported by a republican congress allowed increased wealth, for the wealthiest, not for the rest of us. I hope voters can see we need to change the rules and even out the playing field and a billion dollar a year tax break for Exxon/Mobile (largest earnings in the history of the world in 2006) isn’t the direction we want to go

Call your representatives and urge them to pass the clean energy tax credit.

Call your representatives and urge them to pass the clean energy tax credit.

I have mixed feelings about this.

On the one hand, I’m a shareholder in several alternative energy companies that would probably do well for me with this tax credit.

On the other hand my current house was built in the early 80’s when we had another set of tax-credits left over from the Oil Embargo days. So the owner installed all kinds of whiz-bang solar technology, e.g., rooftop water pre-heatings panels. By the time we bought the house the tax credits had expired so the companies that depended on them for business had gone out of business and there was no one to maintain the panels, and we had to have them removed when they started to leak, and replaced out hot-water heater at great cost!

And that’s the problem with tax credits - they create distortions in the market so companies come into existence that would not be viable without them and can’t survive when they end.

In my opinion, instead of MORE tax credits, we should have LESS tax benefits for oil companies and LESS tax-funded military adventures securing oil supplies. This will drive the price of oil up, allowing alternative energy companies to compete on a level playing field. Here in Massachusetts this would be good for jobs because we have several alternative energy companies based here, including Evergreen Solar which is building a brand-new factory and hiring.

*****This is a hard concept to grasp - but measuring success by growth is a trap for unsustainable, un-natural pressures. The american economy is and should be a system promoting freedom. I should be free to choose a smaller standard of living than my parents - and I shouldn’t be forced to earn more, buy more, and get more debt. We need to focus policy to promote personal choices for happiness - even if that’s a smaller economic footprint. If we don’t change the goal from simply more - to better and personal - our economy will stall and fail.******

Love your comment, I share the same thoughts. I hope more people would think this way, freedom of choosing your content small life without being viewed as a unsuccessful being in this society.

Some people enjoy the day by day secular life without hunger for fame and wealth.

I was actually happier before when I didn’t own lots of things, for real!

I hope more people would think this way, freedom of choosing your content small life without being viewed as a unsuccessful being in this society.

I asked the other poster but he didn’t answer, so maybe I can ask you . . .

In what way do you feel our current society prevents people from choosing a simpler, less-consumer-based lifestyle?

What prevents you or the other poster from, say, taking a part-time low-stress job, living cheaply in an apartment shared with friends and living cheaply and simply?

As I mentioned above, my wife and I live on about 1/3 of our income. We sense no pressure from anyone to live beyond (or even up to) our means.

Don’t give me wrong, I don’t wish for less or too much more like winning a lotto, to put it, I am content with where I am right now, and probably I am just not a very driven person.

When I mentioned “freedom of choosing a small lifestyle” didn’t mean a poor life, it only means a comfortable life and “not” wanting too much, but again it can be a very subjective view. And the use of the word “freedom” doesn’t need to be taken too literally. You are right, no one stops us from living a lifestyle as we want, but the “freedom” can be very abstract, like the peer pressure, and expectations from your families and society , those things you experienced when you were younger, at times, we do live by others’ expectation. But as you age, you see things differently, you know yourself better and more confident with self value. I probably won’t try to impress other people with material things, or the measurement of success, which I did before admittedly.

The small content lifestyle could also be a lifestyle living within our means, not try to stretch our pockets. That’s all. I wasn’t trying to say being rich is a bad thing, or being poor is the right thing. Nope.

Look at individual debt levels. People are crazy. Look at the housing crisis. People are nuts.
Live for today and expect the government to take care of you tomorrow.

****Look at individual debt levels. People are crazy. Look at the housing crisis. People are nuts.
Live for today and expect the government to take care of you tomorrow.****

Exactly, as they say 2 peas in the same pot. I believe there are some people out there who took on the sub-prime loan were lured into this, or somehow they were too optimistic so only focusing on the first few years rate. But probably a good portion of them just live beyond their means or stretching the pockets. And even with fix-rate loan, I believe lots of people in this country have stretch their pockets too.

Here’s a question, do you buy a house based on how much you can afford monthly, or how much do you really have to pay over the 15 or 30 years fix-rate loan (interest)? Which one should you take to measure your affordability?

In my opinion, instead of MORE tax credits, we should have LESS tax benefits for oil companies and LESS tax-funded military adventures securing oil supplies. This will drive the price of oil up, allowing alternative energy companies to compete on a level playing field. Here in Massachusetts this would be good for jobs because we have several alternative energy companies based here, including Evergreen Solar which is building a brand-new factory and hiring.

I agree this in a fair world this would work.
However we don’t have the time now for this.
It’s not a fair world and I think to compare technology of 30+ years ago to today is also not a good argument.

In the the 70’s a compact car was a pinto.
People used 8 track players in their cars…