Sunday, July 3, 2016

Is 'Average Over?'

Commentator Ray Lopez directed me to a book by Tyler Cowen.

Ray as a commentator is even sweeter as he's a Money Illusion transplant Me and Scott Sumner have had words again which I will chronicle in maybe my next post.

In any case, Cowen's book is potentially controversial. The best books are, of course.

Cowen argues that:

 "High earners are taking ever more advantage of machine intelligence and achieving ever-better results. Meanwhile, nearly every business sector relies less on manual labor, and that means a steady, secure life somewhere in the middle-average-is over."

This sense that average is over has led to a lot of the political problems we've been seeing. If Cowen is right and it's a function of technology, I don't know that it's politically sustainable.

It's also interesting to contrast what he's saying about technology here with what he says in his Great Stagnation theory. GS claims that the productivity gains we gain through the computer and data revolutions are trivial compared with those of past technological revolutions.

How do you square both the GS and Average is Over theories together?

In any case, recent news seems to suggest that maybe middle income people will make a comeback, after all.
"The 99 percent just had its best year in nearly two decades."
"The vast majority of American workers are finally seeing their incomes rise from the depths of the Great Recession, a new analysis from one of the world's leading scholars of economic inequality suggests. But incomes for the top 1 percent continue to rise substantially faster."

"The analysis of Internal Revenue Service data on pre-tax earnings, from UC-Berkeley economist Emmanuel Saez and published by the Washington Center for Equitable Growth think tank, finds incomes increased by 3.9 percent last year for the bottom 99 percent of U.S. families. That's the strongest growth those workers have seen since 1998, but it's still not enough to repair all the damage the recession wrought on those workers: As Saez notes, those families on average have only regained two-thirds of the income they lost during and after the financial crisis."

"The top 1 percent, in contrast, have now regained almost all the income they lost during the recession. Their incomes grew by 7.7 percent, almost double the rate of the bottom 99 percent of workers, in 2015. Other work this spring has also suggested typical worker income growth is accelerating, including an analysis by former Clinton administration economic adviser Rob Shapiro that finds mounting income gains for young workers in particular in recent years."

Greg left this comment when I discussed this yesterday:

"Well there are a couple things that might throw a little water on that good news about the 99%."

Typical Greg, always wanting to throw cold water on any possible good news. LOL

"1) Dont tell me about "average salaries". Average is a worthless term with so much inequality. Even within the 99% you have plenty of people making high six figures and maybe many of their salaries have grown (middle managers or even individual business owners) while the guy doing the 50-60 hour weeks is still getting no raises, having his workload increased and seeing no exit form the treadmill 2) There is just a smaller workforce so those working may have seen some gains (but again the gains probably are very top heavy within the 99%) but we still need ways to get more people back into the workforce."

I'm not sure if it was 'average' or 'median' which could make a big difference as he says.

I agree that we're certainly not out of the woods yet. But it's something. Something is more than nothing.

Anyway, this could already contravene Cowen's theory. Let's hope so. 

Because, politically, this is going to be the big challenge for Hillary and the Democrats-assuming she wins as she probably will. 

Incomes have to continue to rise. If they do, then then the dysfunction will start to be bottled up again. 

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