It's Just Not That Simple

Our Education Problem

2011-11-06T15:49:00.000-08:00

The New York Times has been called the default national newspaper, even though it is politically a little more liberal than the nation as a whole. Similarly, I guess that TIME is the closest we have to a national magazine, with a look at the issues that are of the most interest to Americans each week. It may be slightly to the right of the New York Times, while still just a bit to the left of center. Yet more than any other magazine, it's the world's window on the American mind, week by week.

So I use TIME a lot to let me know what's going on and to feel the nation's pulse. This week the magazine's lead story was on declining social mobility in America. Two other stories splashed across the cover are closely related to that lead: one about the growing divide between young and old, the other about the sad state of education in the U.S.

The story Whatever Happened to Upward Mobility takes a look at how America's unwritten contract over the ages - we accept greater income inequality here because of the greater opportunity to move up and into a higher income level - has weakened recently. In other words, it's harder to move up from middle-income to wealthy; harder still to move from poor to wealthy. There's not a lot new in the article, much of it having been subjects of discussion for several years, and it reminds me of a story in the Washington Post yesterday on the same topic. One example of this "so what else is new?" idea is when columnist Michael Gerson writes "An economy that rewards skills and other forms of human capital is not a good place to be a dropout with a child out of wedlock." Wait - what? Really? So mostly, it's stuff we already knew.

Yet TIME's story makes it clear that there has been a shift and that some of the causes of decreased class mobility - and the accompanying greater income inequality - are societal and largely beyond most individuals' ability to change. One is the greater emphasis our economy has put in the financial sector relative to the past and to other countries; for the most part, this has not been a good thing for the country. The other is how the relatively smaller "social safety nets" in the U.S. have made it harder for lower and middle-class citizens to move up the ladder, compared to European countries, although Europe's current economic crisis shows there's a downside to that, too. But the bottom line is my Income Inequality essay of 2007 was wrong, to the extent that it didn't recognize the changes in social mobility. That's partly due to developments over the last 4 years, but also my failure to see all of the signs of those changes back then.

Nevertheless, the TIME story's main message overall is that we need better educated workers to get and keep decent paying jobs. That quite simply is the bottom line: education is the best way to reverse these negative trends. So this finally takes us to the magazine's article When Will We Learn?

Again - this is mostly stuff we already know. But with kind of an exclamation point on it! When Steven Jobs graduated from a California high school in 1972, the state's schools were widely recognized as the best in the world. Fast forward to today when California's schools "...rank at the bottom of the country, just as the U.S. now sits at the bottom of the industrialized world by most measures of educational achievement." The country's educational system now ranks 26th in the world; even worse in science and math.

In a world where low-skill jobs can be done much cheaper elsewhere, this is the single biggest cause of our high unemployment and stagnant incomes. While other countries have beefed up their math and science instruction, we instead have funneled college students into new "fields like sports exercise and leisure studies." The article sums it up with "Our labor force is too expensive and poorly educated for today's marketplace." If people are to move ahead in society, a good education is the number one requisite, and we as a nation aren't doing the job.

The solution? A combination of harder work on the part of students, more money for teachers, and more innovative teaching strategies. Students in Shanghai, which just last week scored higher than any other high school students in the world, go to school 2 hours a day longer than U.S. students; they study formally after school every day, and on weekends too. TIME cites South Korean students, who have two more full years of school than their American counterparts. Past essays on this site have described the lack of motivation on the part of the typical American student; this is also different from students in other countries, and thus another reason we rank 26th.

How will we add two hours a day, two more years overall to our children's schooling? That's all about the money, not to mention serious push-back from teacher unions, parents, and especially students themselves. And to be just totally blunt, that still leaves the motivation issue, which will only be solved, IMO, by an extended economic depression that finally slaps this message into our kids' heads: "If you want any kind of decent life, you better start working a lot harder than you have been!"

TIME once again brought up teachers in Finland, which has one of the world's most successful educational system. As you may already know, all Finnish teachers must have a Master's degree, teachers are considered as prestigious as doctors, and only one out of ten applicants are accepted into teaching programs. Meanwhile, a teaching career, and the people it attracts in the U.S., is not quite at that level, to put it gently. All this matters, says Bill Gates, who's spent $5 billion of his own money to improve U.S. education. He believes that the biggest single factor in improving student achievement is better teachers. He mentions a study that "estimates that if black students had a top-quartile teacher rather than a bottom-quartile teacher four years in a row, that would be enough to close the black-white test-score gap."

"More money for teachers" has been the mantra of just about everyone in America for many years - but it just never happens, and probably never will. At least not in the foreseeable future. We were exploring the concept of opportunity cost in my classes the other day, and one of the examples we considered was reducing the national debt vs. spending more on education. Almost everyone agrees that we need to seriously boost our educational system, and that will cost money. But at the same time, almost everyone agrees we need to do something about the national debt. These two things truly are mutually exclusive - at least in the short-run. In the long-run, a better educational system will help solve many of our problems, including the debt. But we simply can't afford to spend more on education right now. At the same time, we can't afford not to. A dilemma of the greatest order....

This of course relates to TIME's The New Generation Gap, and my own Generational Warfare essay of last month. The elderly are taking a larger and larger piece of the pie, and they are politically very powerful. In a time of especially scarce funding, they're sucking away money that could, that should, go to improving our educational system. In the long-run, we all win from better schooling - assuming that the teacher unions and students themselves see the light. Unfortunately, our country doesn't have a good record lately on sacrificing in the short-run in order to create a brighter future. That's gotta change, or else we're all sunk.

Cause and effect: 1% vs. 99%

2011-10-30T11:16:00.000-07:00

Regular readers of this blog (all 3 of you) can't help but notice that for the last year or even longer, my writing has been almost exclusively about the dismal state of the economy, who's to blame, what can be done, etc. Actually, that pretty accurately reflects the situation and mood of the country as a whole, as time and again polls show that our economic problems are the number one thing on most people's minds. With the growing size and attention paid to the Occupy Wall Street (OWS) movement in recent weeks, there's little to suggest that this will change anytime soon. So let's take another look at this whole situation, if for no other reason than to clarify what "the 99%" want, and try to come to some agreement on how much of that is justified.

Let's start by considering this blog's theme and the quotation from John Kenneth Galbraith: "People 'know' things that simply aren't true, or at least are much more complicated than they realize. John Kenneth Galbraith said: 'Americans are the most prone to misinformation... so much of what they themselves believe is wrong.' More famously, he also said: 'The conventional wisdom serves to protect us from the painful job of thinking.' So is it really that shocking when I suggest that the conventional wisdom - and what most Americans believe - i.e. "it's all the rich people's fault", is not quite true? In fact, and in line with this blog's theme, you can be pretty certain that if people were all up in arms about how the rich and Wall Street were being unfairly blamed because they had done nothing wrong, I'd be writing about how that was crazy talk.

But before you get too upset because I don't completely support "the 99%" and their OWS movement , let me review what I've suggested the rich are responsible for. In other words: saying it's not all the rich people's fault isn't the same thing as saying the OWS folk have got it all wrong.

In fact, my most recent thought on that topic was a comment on Facebook a week or so ago, that the rich, Wall Street, and the big corporations are responsible for perhaps 40% of the economic mess that OWSers are protesting. That's a bit less than half, which is still a pretty big chunk of responsibility! OK - so what have they done, what are they responsible for? In the past year or so, I've suggested in my blogs the following:
* Ridiculous executive salaries and bonuses, way out of line when compared to their employees
* Promoting and profiteering from the nation's obsession with materialism in recent decades.
* Excessive focus on profits, rather than the good of the country, with perhaps a trillion dollars or more being drained from the rest of us and into the pockets of the wealthy over the past 20 years
* Knowingly marketing dangerous "time-bomb" variable rate mortgages to people without advising them of the risk, reaping countless billions for themselves by doing so
* Creating and profiting immensely from bogus financial derivatives that they should have known would ultimately collapse, bringing our financial system to the brink

The last two items especially contributed to the nation's near meltdown in 2008, which set off a chain of negative consequences that we're feeling today, which in turn are the main cause of the OWSers' ire. And regarding those last two items, let me add my anger to that of the OWSers for these guys not being thrown in jail for their illegal actions associated with mortgages and financial derivatives. So to the degree that OWSers want justice and change based on these things, I'm on board!

The real problem, however, comes with the overall message that the 1% have gotten rich at the expense of the 99%. I believe that is, for the most part, a fundamentally flawed claim. It assumes a cause and effect relationship when - again, for the most part - that is not the case. It is certainly true that the rich are richer, while the poor and middle class are no better off; the recent report that the richest Americans are something like 275% richer now than in 1979, while the rest of us are something like 15% richer, is just the latest "evidence" of how the rich have prospered at our expense. But while I'm not aware of much in the way of cold, hard facts to show that we are no better off because of the rich's actions, there is a substantial body of evidence suggesting that is simply not the case. In other words: yes, they've prospered while we mostly have not; but that doesn't mean "it's their fault".

As mentioned in earlier blogs, the case for our failure to prosper NOT being because of what the rich have done is painstakingly documented in my "Income Inequality" essay of 2007, when this question first attracted a lot of mainstream attention. That essay quotes quite a few Nobel Prize winning and highly respected left-leaning economists all saying about the same thing: the rich have gotten richer, we should probably tax them more, but they're not the cause of most of our problems. I understand that some of the more radical of you might consider even left-leaning economists to be untrustworthy sellouts and if that's the case, then God bless you because you're going to believe what you're going to believe. But for everyone else - you can accept my conclusion in that essay with or without reading it, or you can challenge it by questioning specific points of the essay, but don't just say I'm wrong without seriously considering the evidence.

Yet the essay was written in 2007, before the financial meltdown that's brought us to where we are today. So it would be fair to say that such a study, written today, would in fact place more blame on the wealthy, on corporate America. Perhaps, as suggested above, a bit less than half of the total blame. The rest? With changes in global politics, technology, and communications; an underperforming K-12 educational system; a less motivated, more "entitled" American workforce; skyrocketing health care costs; the insane increase in conspicuous consumption and corresponding collapse in savings - these factors more properly explain the rising gap between rich and poor, although we must also recognize the role of tax breaks and other legislative boons accorded the wealthy since the 1980s.

A student protested, in response to my earlier blog "Occupy America": A carpenter who has worked hard his whole life with a wife and two kids gets fired, not because he refuses to work, or because he has been behaving inappropriately at work, but because the company he is on contract with cannot get a loan from any bank for a housing project that they have in mind. So the housing company lays off a bunch of their carpenters because they can’t make all that many houses right now, one of which is our man. That’s supposed to be his fault?

Of course, that's not his fault. I suspect that there are millions of Americans in somewhat the same situation as this guy, and have always acknowledged that to be the case. In an earlier blog, when writing that Americans themselves were largely to blame for the financial woes that had befallen them, I also suggested that this was the case for perhaps 80% of the people, with apologies and sympathy to the others who had done everything right.

But wait - let's test my hypothesis. Let's put all the fault-less guys like my student's unemployed carpenter in one long line. Now let's start another line. Into that line let's put everybody who didn't do their best in school and just figured that society would have a job for them anyway, or who majored in something easy rather than a field that would always keep them working, and those who took their job for granted, didn't put in their best effort every day, and didn't constantly upgrade their skills to make themselves indispensable to employers. Add into that line all the folks who bought a 2500 sq. ft. $700,000 house and an 8-passenger $40,000 SUV that gets 14 mpg, for their family of three, on a $400,000 home, $17,000 Kia salary. Then find the people who hit Starbucks every day for a $4 mocha instead of fixing a cup of coffee at home, who spent $150 a month on their cell so they could have unlimited texting, and ate out every other meal because they're "too busy" to cook, and as a result had big credit card debt and no savings; let them cut into the line. Finally, round up all the people who voted for the politicians who refused to cut government spending and refused to raise taxes year after year, and add them to the end of the line.

Who knows: maybe even the carpenter and a few of his friends will start thinking they really belong in that second line. But, regardless: guess which line is bigger? I'm thinking that second line is four, five times longer - maybe more. And without the kinds of actions people in that line committed, they and the country wouldn't be in nearly as big of a pickle and, chances are, the OWS movement might not exist at all.

So I'm going to stay with the idea that most Americans have themselves to blame as much or more than anyone else. Joel Stein took a break from his normally humorous mode, writing this in TIME magazine's October 31st edition: "I don't know a lot about banking. But I do not believe that the worldwide recession was caused by financial derivatives created by the 1% who tricked the 99%. I believe it was created by the great wide middle class who took out loans to live out the techno-bling dream we deified in rap songs and reality TV. Credit-card debt went up 75% from 1997 to 2007. We're now a nation of really poor people with a lot of frequent-flier miles."

I don't know, but it's good to see that I (and most respected economists) are not alone in questioning the idea that it's all Wall Street's, the rich's, the corporations' fault. The OWS movement, needs to provide more evidence than just "they're rich and powerful, I'm not - therefore it's their fault". If it can. At least for those of us willing to do what Galbraith calls the painful job of thinking, they've got to protest less and convince more if they want to be taken more seriously.

Generational warfare

2011-10-18T18:52:00.001-07:00

And so maybe it's really starting now: the Old Generation vs. the Young Generation. That's what a commentator on PBS tonight suggested is happening, and a part of the whole Occupy Wall Street movement. He was talking about the huge problems that young college graduates are having finding a well-paying job. College graduates between the ages of 25 and 34 - who should be entering their prime earning years - are making quite a bit less than those in the same boat a few years ago. Males in that category are earning 19% less, after taking inflation into account, than they were in 2000, when that group's earnings peaked. Females are earning 16% less than in 2003, when theirs peaked. And that's only for those with full-time jobs!

Meanwhile, the lead story on NBC Nightly News was how many people in their 50s and 60s have been totally devastated by what's happened in the last 3 or 4 years. Savings wiped out, unable to get a job or afford health care, losing their houses - really a very bleak picture for the group of people that's supposed to be winding down rewarding careers and entering their golden years. Juxtaposition that shocking reality with a commercial on the same program by the AARP, the group that represents people over 50. "We're 50 million strong," the ad declared, "we EARNED all the benefits we're supposed to get, we won't take anything less, and WE ALL VOTE!" Dang - talk about confrontational! And so the sides seem to be shaping up: the old demanding what they earned, vs. the young demanding a decent future.

I think that more and more, people are starting to see that this country is facing something more than an economic dip, a much more sinister, pervasive problem that absolutely will not be resolved in a few months or even a few years. Probably more like a decade or even two. To many, it's all about the corporations and the rich and the Republicans - that certainly is the consensus among the Occuply Wall Street (OWS) crowd and its supporters. But as I've pointed out in essay after essay on this site, the wealthy and the corporations - with all of their greed, power, and privilege - are the source of only a part of the problem. Where the OWS thinks maybe they're responsible for 3/4 of our problems, I think it's more like 1/4. That share of blame, by the way, is partly addressed in my March essay here "A Really Big Question, part. 4"

So I'm not giving Wall Street a total "pass" on responsibility. But at the risk of being redundant, if you're really interested in an objective view of how the rich and their unequal share of the nation's wealth play into our nation's fortunes, read my essay "Income Inequality in America". There you'll hear Nobel Prize winning economists and highly respected liberal economists explain why - with all of their faults - the wealthy are NOT really the source of most of our economic problems, while finding out what really IS behind them.

But what I'd really like to go back to is a point made in February's essay "The Party's Over, and People Don't Get It". Aside from suggesting that we were in for a much longer period of much harder economic times than most people were willing to accept, a key point there was that we've seen this coming for decades. Quoting from that essay: "I remember back in the mid-1970s when I started in the investments business; conservative analysts were alarmed by the federal government spending more than it took in, year after year. The nation's debt was rising at a then-alarming rate, while the value of the U.S. dollar was rapidly eroding. We have to stop this now, they said, or else our children and their children will pay a heavy price down the road! Congresses and Presidents came and went, but nothing fundamentally changed. To fix the problem required raising taxes and/or cutting government spending - two equally unacceptable policies. Anyone who pushed either option would likely be voted out of office by angry voters: "You raised my taxes!" "You cut spending on my favorite program!"

So Congress borrowed more money instead, kicking the can down the road, letting the next Congress deal with the problem. Disturbing annual deficits in the tens of billions of dollars in the 1970s became shocking deficits of hundreds of billions in the 1980s and 1990s (except for a few surplus years in the late-1990s), and then insanely high deficits that eventually exceeded $1 trillion a year by the late-2000s. Each time, as Congress refused to make the tough decisions (cut spending and/or raise taxes), everybody said: "If we don't fix this now, it's today's children who will pay the price." Nobody pretended to not understand that their inaction would put the burden of their decisions on the backs of future generations; the presumption was always "well, we didn't fix it this year, but next year we will!"

But it was a cruel hoax, a deceit. Most politicians knew in their heart of hearts that they couldn't solve the problem, that they didn't have the nerve to take the tough actions needed to do so. And besides, by the time the problem got totally out of control - they'd be long gone. Someone else's problem!"

Pete Peterson, Nixon's Secretary of Commerce in the 1970s, wrote about this in his 2004 book Running on Empty. Because of failed leadership in both our major political parties, he documented the trend towards our nation's insolvency, the inevitable clash between old and young, and the bleak prospects that future young people would have in America.

Strange as it sometimes seems, the future quickly becomes the present. And our "present" really isn't much of a gift, if you'll excuse the silly pun. Government's refusal to act responsibly for most of the last four decades, combined with the American people's own fiscal foolishness (rather painstakingly detailed in many of this site's past essays) have combined to put us in this virtually unsolvable virtual insolvency.

Limited resources: that is the most fundamental crux of the social science of economics. There's not enough for everyone to have everything they want, so choices have to be made; economics is the study of how a society makes those choices. While most of the focus right now is how to let Wall Street and the wealthy have less and give more to the "99%", I think the real question, the real battle, is going to be between the past and the future. With somewhat of a shrinking pie, do we continue to give the elderly their full portion, while malnourishing the young? Or do we go the other way? Or see to it that neither group gets as much as they want, making both groups unhappy, but a bit less so?

Parents and grandparents, against their children and grandchildren - is that what it will come to? The Vietnam social divide all over again, 40 years later? That's what I predict, and I'm not pleased at the prospect.

Occupy America!

2011-10-10T13:36:00.001-07:00

Americans are sick and tired of the status quo, Wall Street greed, the rich getting richer while they're losing their houses and jobs - etc. Thus, the whole Occupy Wall Street, Occupy Boston, San Diego, whatever. What to make of this whole protest movement, being touted as the equivalent of the great civil rights and anti-war movements of the 1960s and '70s?

The Chairman of the Federal Reserve, Ben Bernanke, was asked what he thought about the Occupy Wall Street protests last week. His response was that he thought there was some merit to it, some justification for blaming Wall Street greed for our current economic malaise and extreme inequality (99% struggling, 1% fatter than ever). And I suppose that's about right. Some merit. But not nearly as much as most protesters, and the general public, believe.

You can follow my reasoning for such a statement in the blogs posted here over the last few months, but let me recap their main points to give you the general idea. Working back in time, August's essay on Rioting in London suggested that people had become so accustomed to the good life of recent decades that they would simply be unable to accept anything less. Hard times? No job? Government cutbacks? Hell no - we're not going to take it! They would therefore protest, even riot, even - before too long - in the United States. And so we are starting to see that.

In July's Debt and Money I wrote that: "Our standard of living for the last few decades, which actually meant living way beyond our means, is about to change dramatically. To everyone who was used to “having it all” the last 20 or 30 years and who is downright outraged at how that life is being “taken” from them now – wake up! We, as a nation, didn’t deserve – hadn’t earned – all our material prosperity, and now are simply being presented with the bill. March in the streets, complain bitterly about our traitorous politicians, hold your breath ‘til you turn blue – but none of that will change this reality."

And in February, "The Party's Over, and People Don't Get It" was pretty much self-explanatory. It discussed, among other things, how the rest of the world was finally getting a piece of the pie and that Americans - for so long nearly alone at the top of the food chain - were being forced to do with less. Still better off than perhaps 95% of the world's population, Americans wouldn't gracefully accept this change, wouldn't readily give up the dream of having it all.

Certainly, much of what's going on now makes sense in light of these observations. So far the overall message of the Occupy Wall Street movement is: "we're mad as hell and we're not going to take it anymore!" Mostly, protesters are against the great inequality between the rich 1% and the other 99%, although that is of course an over-simplification since much more than 1% of Americans live happy, prosperous lives. But nevertheless, the target of their anger and dissatisfaction are the rich and the corporations they control. As Bernanke said, there is some merit to this view. In March's four essays on A Really Big Question, it seems obvious that while the excesses of Wall Street (basically: shorthand for "the rich") weren't entirely responsible for the country's miserable economic situation, with their inexcusable greediness and seriously stupid practices, they should get a reasonable share of the blame.

But they're not at the root of the inequality issue, IMO, nor is it clear that income inequality is really as bad as folks make it out to be; and that's where I differ with the protesters. The widening spread between the "haves" and the "have nots" in America over the last few decades is due to a number of factors such as our educational system, dramatic improvements in technology and communication, political changes overseas, and flagging levels of motivation in our young people. All of these, and much more, are discussed in great detail in my 2007 essay Income Inequality in America, which I'll repost to this website for those who want a better idea of what's really behind the inequality thing.

So I'm sympathetic to the movement - somewhat. Taxing the super-wealthy, prosecuting the Wall Streeters who broke laws and in the process caused immeasurable damage to the nation, limiting corporate power in our political system - I can get on board on those things for the most part. But the rest of it - it's all Wall Street's fault, capitalism is a failed system, the whole it's-not my-fault-I-lost-my-house-and-my-job thing - well, not so much. So I guess that mostly I see this movement and these people (with notable exceptions) as kind of a joke, based on an over-simplified and mostly uninformed view of the actual world.

Income Inequality in America

2011-10-10T13:16:00.000-07:00

INCOME INEQUALITY IN AMERICA:

A BIG PROBLEM…...OR NOT

(A couple of notes: This was written 4 years ago, before the big financial meltdown. Thus, some of the data and comments are inappropriate now. Still, the main points are mostly valid even today. Finally, this website does not support many of the graphics in this essay. For a more complete view, please email me for a Word copy of this essay.)

If you ask anyone, they’ll tell you that a huge problem in the United States these days is that the rich keep getting richer, while most of us find it harder and harder just to get by. Corporate CEOs make unimaginably high salaries, even if their companies lose money, while young middle class adults worry if they’ll ever be able to buy a house. Wealthy yuppies and boomers have two Mercedes per household (an SUV and a luxury sedan, thank you very much) – unless they have kids over 16, in which case they probably have a couple of BMWs too. Meanwhile, most working stiffs can barely afford gas money for their Chevy, and low income Americans have trouble just paying for their monthly bus pass. Between 1979 and 2004, real wages (adjusted for inflation) grew 63% for Americans in the top quintile (the highest 20% in terms of income), while they only increased 15% for the middle quintile and a miserly 2% for those in the bottom quintile, according to the Congressional Budget Office (CBO). The top 1% of earners now get 16% of all income, vs. only 9% of all income just a generation ago. [i] America is getting away from its past and its promise, and becoming a nation of haves and have-nots.

This is disturbing to a great many people for a variety of reasons. Boston Globe columnist James Carroll avers that we are “impoverishing more and more human beings” and “eroding democracy” by “awarding a larger share of the economic pie to the very rich.” And this (perceived) reality is in contrast to the increasing egalitarianism during most of the 20^th century, as the U.S. “conformed to the standard theory of development, which held that industrialization produces fat cats at first and then a more general prosperity as workers become more productive.” [ii] Several issues are behind this disturbing trend. One is that wages have simply not kept up with inflation in the last couple of decades. Prices keep going up and up – for food, for gasoline, for housing – while wages stagnate. Why should employers give U.S. workers a raise, when they can simply move jobs over to China or India, at a third of the cost, and pocket the difference? Well, it’s important to realize that if an employer doesn’t do this, others certainly will, forcing the “nice guys” out of business and their employees out of work altogether. Congress finally raised the minimum wage, for the first time in 10 years. But $7.25 an hour isn’t even enough to live on today, let alone in 2 years when it finally gets that “high”. Meanwhile meat prices, gasoline prices, health care, and home prices are at all time highs, squeezing the middle class and devastating low income Americans. At the same time, rich kids finish college and land Wall Street or law firm jobs that start at more than $100,000 a year, while Paris Hilton earns a million bucks just for showing up at a party!

The other major factor behind America’s economic dichotomy is the tax structure. Beginning with Reagan in the 1980s, wealthy Americans benefited from a series of Republican tax cuts, even as federal deficits soared and lower income taxpayers paid as much as ever. Under the second Bush’s administration, tax breaks for the rich – in the form of lower capital gains taxes, lower income taxes, more corporate subsidies and tax loopholes, and even a huge tax rebate for anyone buying a big gas-guzzling SUV – continued to be the order of the day. While the sons and daughters of regular Americans fought and died in Bush’s senseless war, and our nation careened further and further into debt, the rich and their children, safe from the quagmire that is Iraq, got richer and richer. “Trickle-down” economics was supposed to translate tax breaks for the wealthy into prosperity for all, but instead has turned out to be nothing more than a cruel joke.

The bottom line is that for the vast majority of Americans, our standard of living has steadily gotten worse. If you’re an autoworker, a teacher, a small business owner, a soldier – you’re worse off today than you (or your parents) were 30 years ago. Unless you already own a home, good luck ever buying one! And you can probably forget about retiring before you’re 65 or 70, at least if you expect to get Social Security or want to be able to afford health care. And heaven forbid that you’re black or Latino, because then the deck is really stacked against you! The gap between rich and poor has progressively grown wider, and that’s just not a good thing.

Right?

Well, um – YES. But mostly – NO.

REAL WAGES

The table below shows what has happened to Americans’ real wages (wages after adjusting for price changes) since 1964. This is a pretty good way to gauge changes in living standards. Ceteris paribus (everything else being equal), if wages go up faster than the prices of goods and services, then we can buy more stuff and we are therefore (at least materially) better off. On the other hand, declining real wages means that we can’t buy as much as before, our standard of living is worse, and that’s not so good.

The data show that real wages trended higher until about 1972, when they began a steady decline that lasted some twenty years. By 1993, real wages (based on the price levels of the year 1967) had fallen some 24%, to $87.56 a week. Since then, real wages gradually recouped about 6% of their losses, and then have stayed pretty steady for the last few years. What’s behind these trends?

A closer look at the data shows that the biggest drops in real wages came in 1974-1975 and 1979-1980. That’s hardly surprising. The Arab oil embargoes of 1973 and 1979 sent fuel prices skyrocketing, at the same time as they sent world economies into recession – what economists call “stagflation”. Inflation approached 15% a year and real GDP fell, while the unemployment rate peaked at nearly 10% in the U.S. With jobs so scarce, workers were happy just to hang onto their jobs even without a raise, while the prices of almost everything they had to buy increased. So, the biggest hit to real wages came as a result of these geo-political disruptions between 1973 and 1980. The sources of slow declines in real wages and consumer purchasing power throughout the 1980s and into the 1990s are more difficult to identify, however.

Average hours and earnings of production and non-supervisory workers on private non-farm payrolls, Annual averages ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb2.txt

                    Weekly  Hourly

                     Hours   Wage  Earnings    CPI *  Real Wages             * 1967 = 100

                                                                                 (Earnings/CPI)

1964...........    38.5    $2.53    $97.41       92.9   $ 104.85

1970...........    37.0     3.40    125.80      116.3      108.17

1971...........    36.8     3.63    133.58      121.3      110.12

1972...........    36.9     3.90    143.91      125.3      114.85

1973...........    36.9     4.14    152.77      133.1      114.78

1974...........    36.4     4.43    161.25      147.7      109.17

1975...........    36.0     4.73    170.28      161.2      105.63

1976...........    36.1     5.06    182.67      170.5      107.08

1977...........    35.9     5.44    195.30      181.5      107.60

1978...........    35.8     5.88    210.50      195.4      107.72

1979...........    35.6     6.34    225.70      217.4      103.82

1980...........    35.2     6.85    241.12      246.8        97.70

1981...........    35.2     7.44    261.89      272.4        96.15

1982...........    34.7     7.87    273.09      289.1        94.47

1983...........    34.9     8.20    286.18      298.4        95.91



                           Real Wages, 1970-2006
     $ per week
     
         
   
      
 


1984...........    35.1     8.49    298.00      311.1        95.79

1985...........    34.9     8.74    305.03      322.2        94.67

1986...........    34.7     8.93    309.87      328.4        94.37

1987...........    34.7     9.14    317.16      340.4        93.17

1988...........    34.6     9.44    326.62      354.3        92.19

1989...........    34.5     9.80    338.10      371.3        91.11

1990...........    34.3    10.20   349.75      391.4        89.36

1991...........    34.1    10.52    358.51     408           87.87

1992...........    34.2    10.77    368.25     420.3        87.82

1993...........    34.3    11.05    378.89     432.7        87.56

1994...........    34.5    11.34    391.22     444           88.11

1995...........    34.3    11.65    400.07     456.5        87.64

1996...........    34.3    12.04    413.28     470           87.94

1997...........    34.5    12.51    431.86     481           89.78

1998...........    34.5    13.01    448.56     488.3        91.86

1999...........    34.3    13.49    463.15     499           92.82

2000...........    34.3    14.02    481.01     516           93.22

2001...........    34.0    14.54    493.79     530.4        93.10

2002...........    33.9    14.97    506.72     538.8        94.04

2003...........    33.7    15.37    518.06     550.3        94.14

2004...........    33.7    15.69    529.09     564.9        93.65

2005...........    33.8    16.13    544.33     589.9        92.27

2006...........    33.9    16.76    567.90     608.8        93.28

Several world trends and national developments have been suggested. The most obvious culprit is probably the Republican administrations of Ronald Reagan (1981-1989) and George H.W. Bush (1989-1993). Their pro-business philosophies made it harder for workers and their labor unions to win wage increases: witness the air traffic controller’s strike of 1981, which resulted in thousands of controllers getting fired. [iii] Free-market policies such as deregulation and public service cuts further limited real wage gains. [iv] Amazingly, real wages reversed their downward trend shortly after (Democrat) Bill Clinton took over the Presidency in 1993, though.

But it seems unlikely that Republican practices and policies were a significant cause of declining purchasing power during this time, or that Clinton was responsible for the modest improvements that occurred on his watch. Economists of virtually every stripe agree that Presidents get too much credit when things go well, and too much blame when things go poorly. Economic success or failure, they argue, mostly occurs independently of who’s in office, as the President has much less actual influence on the economy than most people believe. Robert J. Samuelson, writing in Newsweek magazine, suggests that “The Reagan and Bush tax cuts are weak explanations, because gains have occurred in pretax incomes.” [v] Larry Summers, a noted Harvard University economist and Secretary of the U. S. Treasury during the Clinton administration, views the middle-class income gains of the Clinton years as “an aberration, caused by a combination of low oil prices and a financial bubble that made the job market unusually tight,” rather than evidence of Democrats fixing what the Republicans had broken. [vi]

Matt Bai is a nationally-acclaimed political writer for the The New York Times. Bai similarly rejects comparisons of today with the (Republican-led) America of Herbert Hoover in the 1920s, when income inequality was also so large. Based on the work of economists Thomas Piketty and Emmanuel Saez, he points out that the middle-class back then was poor by today’s standards, with an average income of $16,500 (inflation-adjusted) dollars. It’s also true, Bai contends, that what we consider poverty today is strikingly different from the poverty of only 40 years ago. When Lyndon Johnson aggressively attacked poverty with his Great Society programs, Bai reminds us, there were still rural poor with no electricity, running water, or grade-school education. Today, most of the poorest neighborhoods (as depressed as they may be) have all of those necessities and more.

Bai also concurs with Summers in rejecting Republican tax cuts and ridiculous executive salaries as a significant cause of today’s extreme income distributions, instead focusing on “a combination of technological advances and globalization…. wages for high-school graduates, who used to be able to get factory jobs, have stagnated, while highly educated workers have become increasingly valuable to companies seeking any intellectual advantage in an increasingly competitive world.” [vii] It’s worth recognizing, by the way, that The New York Times, so prominently referenced in this monograph, has the reputation of being America’s default “national newspaper” and is a self-confessed liberal publication. It is hardly a slavish supporter of Republican policies.

Others will nevertheless choose to focus on the Reagan/Bush/Bush policies as the root of increased income inequality, and they are free to do so elsewhere. But here, we’ll contend that the problem can be traced to globalization, the skills of American workers, the business cycle, and Congress – which controls government spending and taxes, after all – as well as “external shocks” such as oil embargoes, wars, and financial crises in other parts of the world. We will, however, come back to the whole “tax cuts for the rich” thing later, since that issue is so seriously misunderstood by most Americans. But for now, we need to look elsewhere for the sources of income inequality.

Several important and inter-related world trends may help explain what has happened. The most important is perhaps the tremendous improvement in technology and communication that defined the 1980s and 1990s. Over the last 30 years, personal computers went from being unknown, to clunky and expensive, to ubiquitous, cheap, and incredibly powerful. At the same time, cell phones, fax machines, the Internet, et al became just as ubiquitous, cheap, and effective. Along with all the amazing inventions, discoveries, and improvements made in the varied sciences during this time period, advances in technology and communication increased productivity and accelerated the U.S.’s transformation into a services-based economy. Economist Summers agrees that improved technology and global trade are the primary sources of stagnant American wages. Better technology and communication made it easier to produce items in other parts of the world, where labor costs (often along with taxes and government regulation) were substantially lower. Why pay Americans $10/hour plus benefits in the 1980s, when Mexicans would do the same work for $3/hour? Why pay them $15/hour plus benefits in the 1990s, when Chinese would do the same work for $2/hour? The awakening of the sleeping Chinese giant, not to mention India’s one billion citizens, many of whom speak English, has changed the entire worldwide manufacturing landscape. They, along with many millions of others in developing nations, have jumped headlong into the capitalist fray, increasing the world supply of just about every kind of product.

This has obviously put downward pressure on the prices of most manufactured goods – “the Wal-Mart effect” - but the flip side is also lower wages for American workers who have to compete not just with one another for jobs today, but with the whole world.

Meanwhile, (Democrat) Summers is in the camp of those realists who believe that there’s no way to “put the genie back in the bottle”, so to speak; globalization and amazing technologies are here to stay, and trying to stop jobs from going overseas with (typically Democratic) “protectionist measures will only create other problems such as inflation and slower economic growth.” [viii] The bottom line here is that the “non-supervisory production worker” that serves as the basis for our real wage analysis, as shown in the earlier table, has little to do with the U.S. economy of today and fosters “apples vs. oranges” analyses.

A related piece to this high-tech, global economy puzzle is the productivity of the average worker. We know we can’t beat China and those other nations on a cost per hour labor basis, but instead have placed our bets on the productivity of American workers. Well guess what? Our guys (and gals) have lost some of the edge they may once have had. China’s labor productivity grew an average of 17% a year from 1995 to 2002 compared to a 4% growth rate for the U.S. over the same time period. [ix] Over the last decade or so, U.S. GDP grew about 3% a year, while China and India both increased their production at rates closer to 10% a year. At those rates, U.S. production (GDP) doubles in about 24 years, while the Asian giants will double their output about every 7 or 8 years.

Part of the problem traces back to our schools. As an experienced teacher who has worked in the International Baccalaureate (IB) program and also scored exams from IB students around the world for a dozen years, the author has a keen understanding of what U.S. kids learn and are able to do, compared to students elsewhere. American public schools (K-12) are seen as somewhat inferior by much of the world and, in fact, a U.S. high school diploma isn’t even recognized by most universities in Europe and some other parts of the world.

One way to measure this devalued U.S. education is by looking at the number of students who earn a “7” on IB exams – the highest possible score. Worldwide, about 15-20% of test takers are awarded 7s on their exams. At the San Diego School of International Studies, an established IB school with above-average test results for an American school, fewer than 5% of students earn 7s. But there’s more: most of the kids in other countries are working in a language (English) other than their native tongue. And more still: at San Diego’s IB school, many kids opt for the easier, non-IB courses where the curriculum is considerably weaker than what their peers are getting in other countries. Meanwhile, most kids don’t even want to come to this school because its classes – even the non-IB ones – are harder than classes at other area high schools! The implications of these realities are all too clear, and they’re not good.

This type of anecdotal evidence is buttressed by the latest report on student achievement issued by the Department of Education. It shows that only 35% of high school seniors can read at an appropriate level, while a mere 23% ranked “competent” in math. This is in spite of students getting an average of 360 MORE hours of instruction than their 1990 counterparts. The extraordinarily sad fact is that American students are allowed to graduate with remedial skills in many key subjects. That’s the norm, not the exception; nearly two-thirds of all U.S. college freshmen need to take one or more remedial courses. [x] This would have been unthinkable just a couple of decades ago. Meanwhile, as too many US students are looking for (and often finding) the least rigorous way to finish high school, students in the rest of the world appreciate the value of a good education, and they’re making the most of their time in school. More and more, the result is young adults entering the work force in other countries who are bilingual or trilingual, with better math and science skills and even a better knowledge of U.S. history and government than most Americans.

This whole issue relates to the ‘returns to skill” principle. That term refers to how income correlates to years of schooling and years of work experience. In 1997, a male California worker with a bachelor’s degree earned 70% more than a similar worker with only a high school diploma, vs. only 50% more in 1969. Similarly, a male worker with 25 years experience earned 91% more than someone with 5 years experience in 1997, vs. 68% more in 1969. According to the Public Policy Institute of California (the source of data cited above), “the change in returns to education results more from falling wages for men at the bottom of the distribution than from increases for men at the top.” [xi] Rather clearly, then, more education – and, one might pointedly add, a better quality education – is required to earn a decent living in today’s global economy, when compared to the sheltered American job market of 1969.

Why does this happen? Why are our future workers losing the competitive battle with their peers around the world? As implied earlier, the lack of sufficient spending on education doesn’t seem to be a major factor. This belief is supported by a report from the Organization for Economic Cooperation and Development (OECD) that indicates U.S. spending per student is generally in line with that of other advanced countries. Further, it suggests that higher spending per student does not necessarily result in higher achievement. [xii] While anecdotal evidence exists of students attending many more days of school a year in countries other than the U.S., our students actually average about 1080 total classroom hours a year, compared to 944 hours for all OECD country students.[xiii] And reference was previously made to the increase in U.S. instructional hours since 1990, with no positive impact on achievement levels. Of course, there are serious social issues that can help explain lower student success: the proliferation of one-parent and no-parent households, increased drug abuse, gang activity, English language issues for recent immigrants, etc. But the author thinks there’s a bigger issue than any of these, one touched upon earlier: that issue is one of student motivation.

Time and time again, kids do poorly in high school simply because they don’t come to class, don’t do even the easier assignments, don’t study for tests, and don’t come in for help that is available. Even knowing that their lack of effort will cause them to fail, many really don’t care. No matter how many times they get the “your future is going to be determined by how well you can compete with kids from around the world” speech, they don't seem to get it. Why? In some cases, it seems to be the idea that “I can’t get anywhere no matter how hard I try, so why bother?” In many more cases, though, it’s just a matter of being spoiled, of feeling “entitled”. A disturbingly common attitude among high-schoolers is that they live in the rich and powerful USA, “somebody” will always take care of them, and one way or another they’ll have a decent income – “so what’s the big deal? I’ll worry about it later,” many apparently think.

This is directly opposed to the attitude commonly found in – at the risk of stereotyping - Asian students, who are driven to excel in school by their families and their own sense of pride. But this is more than just a stereotype; even when compared to other OECD nations, “Europe and the United States are increasingly outperformed by countries in East Asia” in academic achievement.[xiv] A student who just recently moved to the U.S. from China (YiQiu Yu), explained it this way to me recently: “Most Chinese are still very poor, and there are only a few good jobs that will allow them to have a decent life. There are 100 good students for every 5 or 10 good jobs, and so we work very, very hard to try to be one of the few to get a good job. Chinese kids are much more serious about school than U.S. students.”

It seems, then, that American students too often fail to see the connection between their schooling today and their future success, while this relationship is much better appreciated in other countries. Why should that be the case? Why would this have changed over time and across locations? Economists typically believe that people respond to incentives: how has the incentive structure changed to lead to such behavior? The usual suspects (i.e. economic prosperity since the 1940s, with increased government support systems put in place over the decades) come to mind, but the real answer may be much more complex. These are immensely important areas of concern for the nation’s future, and so it is unfortunate that addressing them fully is beyond the scope of this monograph.

* * * * * * * * * * * *

But let’s recap here: we don’t have the high paying production jobs that high school grads and even drop-outs used to be able to fall back on because we can’t compete with Chinese and third-world wages. And increasingly, our workforce doesn’t have the skills to justify paying them more than what better skilled, better motivated workers will accept elsewhere for the higher paying technical and service sector jobs. So where does that leave the typical American worker? More and more, flipping burgers, Wal-Mart greeter, telemarketer – these “careers” come to mind.

So yes – real wages for unskilled and low-skill workers have dropped since the pre-oil embargo American heydays of big cars, cheap homes, and factory jobs. But workers’ purchasing power has shown some improvement over the last dozen years or so, and Americans are working an average of 9% less per week than they were in 1970. No – all Americans aren’t getting rich; they don’t all have the Donald Trump lifestyle to which so many aspire. But neither are they doing all that badly. 23% of Americans lived at or below the poverty level in 1975, while only 17.7% were in that same boat in 2005. [xv]

Now for a bit of non-academic reflection. Despite the complaints that regular Americans are slipping further and further behind, a look at what they actually have makes a person wonder. If you were around in the 1950s or 1960s, think back to when you were a kid. Your middle-class family probably had one car, one or two phones, and one TV in a house that averaged about 1200 sq. ft. [xvi] If you were a guy, you wore Levis and tennis shoes most of the time; you had maybe 5 pair of pants, two or three pairs of shoes, and maybe a dozen shirts. Except for the Levis and Converse tennies, name brands didn’t mean much. Going out to eat (even just to Jack in the Box) was a special treat. Portable music meant a crappy transistor radio that got the local AM stations.

Now look at things today. According to National Geographic Magazine (March, 2007), the average American home is 63% larger than 30 years ago – even though families are usually smaller now. Contrary to what one might expect, more families owned their own homes in 2004 (68.9%) than at any time since 1965, when the US Census Bureau first started tracking this statistic.[xvii] How many families now do not have a couple of TVs, a couple three cars [xviii], and half a dozen phones (including cells) today? Just about every teenager – no matter how broke his/her family is – has a cell phone. Middle and high school kids have, on average, many more pairs of shoes, pants, shirts, etc. than their contemporaries of 30 or 40 years ago, and those clothes are more likely to be expensive, name brand items. To many of them, eating at McDonald’s once or twice a day is normal, as is going to the movies each weekend. Chances are, if the kid has a cell phone, then he/she also has a $200 iPod, with its hundreds of customized tunes. And this is for virtually all middle- and many low-income kids! Entitlement is the issue, and it’s deeply entrenched in so many of our kids.

( Note: These observations are based on the author having taught teenagers at a low-income, inner-city high school for 15 years)

So it just doesn’t seem that kids today are worse off than kids of 30 or 40 years ago, at least not in material terms. But what about the populace as a whole? According to a U.S. Department of Agriculture survey, Americans in 2005 eat more fruits and vegetables, 45% more grain products, and 13 lbs. more meat per year than in 1970 [xix]. Meanwhile, total caloric intake increased by 7% for men and 22% for women from 1970 to 2000. [xx] It should be noted that while Americans eat more these days, they very often don’t eat healthier – but that also is a topic for another time and place.

Looking at another facet of American life, what do people drive these days? It seems like every third vehicle on the road is a $30,000-$50,000 luxury SUV that sucks gasoline like mad. And have you been to a mall lately? Two things about American malls these days: they’re EVERYWHERE, and they’re almost always PACKED! Think back to 30 or 40 years ago. How many people drove a big luxury vehicle? (Hint: not very many) How many stores are there today – think total square footage, either stand alone, or in malls - compared to back then? Two, three times as many? More than that? Now check the U.S. census figures: there were 200 million Americans forty years ago, and just over 300 million now - an increase of about 50%. 50% more people, but 100 or 200% more store footage; what's wrong with this picture? [xxi

But where in the world do all these people get all this money to buy all the crap that they’re constantly buying at all these stores, and which they haul around in their mobile houses? A large part of the answer to that question is debt. Just as Americans have become much more materialistic, they’ve also become more willing to take on debt, to max out their credit cards in seeking to accumulate as much stuff as they possibly can. And they’ve put themselves into a very bad situation, such that any small hiccup in their finances can force them to default on their payments and perhaps declare bankruptcy.

According to the Federal Reserve, debt in 2003 averaged $18,654 per household, a figure that doesn’t include mortgage debt. That number has risen more than 41% since 1998. Counting mortgage debt, Americans are an average of $38,851 in debt per person (not per household) as of 2005. Total household debt is now 110% of national income, double the ratio in 1975. In other words, over the last 30 years, Americans have gone into debt twice as fast as the economy itself has grown.[xxii] And of course, better educated, better skilled, higher-income Americans are able to take on more debt than lower-income Americans, and this serves to exacerbate the standard of living gap between the two groups. [xxiii]

Yet despite this increased debt, one area where Americans’ living standards have declined is health care. Per capita health care spending increased by 156% from 1980 to 1990, while spending from 1990 to 2000 increased by “only” half that amount - 71% [xxiv] In 2006, approximately 61% of employers provided health coverage, down 8% from 2000. Over that same time period, premiums have increased 87%, according to the Kaiser Family Foundation. [xxv]. So Americans are worse off when it comes to health care, not to mention their health itself; eating at McDonalds twice a day and then plopping your butt in your big SUV instead of walking will do that, you know. An unkind cynic might point out that we need better health care because we don’t care for our bodies very well, yet we can’t afford it because we spend all our money on fast food, gasoline, and payments for big cars…

But even if Americans are “worse off when it comes to health care”, it is also true that employers have been paying grossly higher amounts of their employees’ health care costs than before. Health care accounted for 16% of GDP in 2004, compared to only 7.2% of GDP in 1970. Businesses paid $448 billion for their employees’ health care in 2004, up some $100 billion from just four years earlier! (www.theglobalist.com) That extra $100 billion in non-wage benefits that employees earned doesn’t show up in the income numbers, even though it is a real cost to employers and one reason why employee wages have been unable to rise faster. (Incidentally, this extra cost is also one more reason why jobs have left the U.S. to go overseas.)

In fact, wages are now just under 81% of the average employee’s total compensation, compared to 91.7% back in 1965. According to the U.S. Census Bureau, business spending on employee health care has risen from just over 1% of total compensation in 1965 to over 7% in 2006, while other non-wage compensation (such as retirement benefits) have gone up from 7% to 12% over the same time period.

In other words: looking at wages alone doesn’t give the whole picture, and we should acknowledge that American workers have also been “paid” in ways that don’t show up on a pay stub. We can and we should adjust Americans’ wages to reflect this, so that we are closer to comparing apples and apples over time. Taking our earlier numbers of average weekly wages (inflation adjusted) from page 5, and factoring in non-wage compensation, it turns out that the average worker in 2006 earned $115.65 per week, compared to about $114.50 in 1965. That’s a real improvement over what the numbers on page 5 showed, and remember that the 2006 worker earned this slightly higher income while working about 4 hours less per week than his 1965 counterpart.

Let’s re-focus again: Americans’ wages have not kept up with inflation over the last 35 years, although for the last 15 or so they have, especially if you factor in the shorter work weeks of today. Most of the failure to better keep up with inflation can be traced back to the wake-up calls OPEC gave the world in 1973 and 1979. Other factors range from pro-business government policies, to globalization, improvements in technology and communication, to complacency on the part of our young people and failures in our education system. Yet Americans seem to be living as well as ever, if not better overall, with perhaps the most notable exceptions and areas of concern being health care and personal debt. But finally, when we look at total compensation rather than just wages alone, it turns out that the average American worker actually has done a pretty good job of keeping up with inflation over the last four decades.

HOW IS INCOME DISTRIBUTED?

Nevertheless, the wealthiest Americans have been doing much better than the rest of us over the years, and the media makes sure we see, hear, and read about that all the time. Sports figures, CEOs, movie stars, billionaires and professional “celebrities” are only the most obvious tip of the iceberg when it comes to the luxurious lifestyles of the top 5% of Americans, in terms of income.

Income is often measured by comparing how “quintiles”, or fifths of the total population, are doing compared with each other. For example, how is the highest quintile (the 20% of the population with the highest incomes) doing compared to the lowest quintile (those whose income is in the bottom 20% of Americans)? There are a couple of key considerations we need to consider before looking at that kind of data. The first is how these income distribution numbers are calculated. Daniel Weintraub, writing for the Sacramento Bee (February 1, 2006), points out that “breaking income distribution into fifths and comparing them over time…sets up an unfair statistical fight. The bottom fifth (or quintile) will always include some people who are unemployed, recently retired, or out of the work force, making nothing or very little, while the top fifth includes the most economically successful people in society, most of whom have been working, full time, for many years.” “The bottom tier”, Weintraub continues, “will always tend to pull the average down, while the top tier has no limit on how high it can reach. With these parameters, a widening gap is almost a mathematical certainty over time” – especially during an extended economic boom, such as the one we’ve seen (with few interruptions) from the mid-1980s to the present. .

Perhaps more importantly, Weintraub adds, the people in the bottom quintile change over time. So as the income gap widens, it’s not that the same people are worse off than they were 20 or 30 years ago. Especially in places like California, Texas, and Florida, with high rates of immigration, the bottom fifth is constantly repopulated with new residents who arrive with little education or skills, while former immigrants move up into the higher income groups. In 1969, immigrants counted for 10% of California’s overall male workforce and nearly 15% of the workers in the 3 lowest wage groups. By 1997, the share of immigrants in the male workforce grew to 36%, with the majority of these workers in the lowest wage categories. This leads the Public Policy Institute of California to conclude that the state’s high concentration of recent immigrants “has contributed strongly to rising income inequality.” [xxvi] Some take it even further, saying that “a central factor in the growing disparity between the ‘haves’ and the ‘have nots’ is mass immigration”. [xxvii]

Well, countries such as Canada and Sweden have immigrant percentages similar to the U.S., relative to their total populations, without the extreme income inequality. Perhaps their immigrants are better educated and skilled than those coming to the U.S. But in either case, a detailed examination of immigration trends is beyond the scope of this paper, so let’s just say that immigration may be a significant factor here.

And in any event this is not to say, as some who cite statistics for anti-immigration purposes do, that immigrants are bad, nor that they are destined to stay poor. As the American experience has shown time and time again, immigrants typically come here with little education, speaking little or no English, and take the lowest paying jobs. Whether we’re talking about my great-grandfather who spoke only Yiddish and “peddled notions” door to door, or a Mexican who picks lettuce, a Somali who drives a cab, or a Vietnamese who alters clothing, immigrants typically start off at the bottom. But twenty years later, they often own a little store, a landscaping business, or their own cab company and their kids are going to college. Forty years later, they’re retired in middle-class comfort while their children have professional careers and their grandkids barely speak the ancestral language. This is how America works, and so people continue to come here by the millions. Starting off at the bottom, so very far behind those in the upper income levels, is OK because they know that they (or their kids) are hardly doomed to staying there.

Another reality is that people in the top quintile (or top 10% or top 1%) getting wealthier doesn’t necessarily come at the cost of keeping low-income people down. Roger Lowenstein of The New York Times reminds us that “whether Roger Clemens…earns 100 times or 200 times what I earn is kind of irrelevant. My kids still have health care, and they go to decent schools. It’s not the rich people pulling away at the top who are the problem…” It’s the people stuck in the lower income levels who are the problem, and as appealing as blaming the rich for this may be, there’s little evidence to support such a view. Economists James Heckman and Alan Krueger, in their 2004 book Inequality in America, agree that the key to narrowing the gap between rich and poor “is all about raising the incomes of people at the bottom. Punishing those at the top doesn’t help.” [xxviii]

So just how much stock should we put in all the numbers that scream “Inequality!” And is America’s increased income inequality, in the final analysis, really such a bad thing?

Critics of America’s income inequality point to the Lorenz Curve (on the following page) to illustrate our worsened situation. In a land of perfect equality, the red and turquoise lines would be right on top of one another, such that 20% of the households earn 20% of a nation’s income, 40% of them earn 40% of the income, etc. In other words: a small percentage of rich people wouldn’t get a disproportionately high percentage of the total income. The U.S. is criticized because its (red) Lorenz curve has been moving further and further away from the (turquoise) line of perfect equality. But again, it’s not clear that a shallow Lorenz Curve (red line close to the turquoise) is such a good thing.

Source: http://www.answers.com/topic/lorenz-curve?cat=technology

Places like Sweden are probably too equal, argues Lowenstein and many economists. There is a “rough trade-off between equality and growth”, he writes. “If you try too hard to make everyone equal, you get fewer entrepreneurs…and a lower standard of living.” Labor economist Richard Freeman, who is generally pro-union, says Sweden’s poorly differentiated pay scales (an attempt at greater income equality) led to unemployment and deficits in the early 1990s, at which time the country moved to a more market-led system. [xxix] Sweden’s GDP growth rates trailed the U.S. and E.U. nations in the 1970s, 1980s, and early-90s, but then turned significantly higher starting in 1993 and has remained so until the present time once it backed away a bit from seeking more equal incomes for all. [xxx] Aside from lower interest rates and a devalued krona, a number of free market reforms – particularly deregulation and reduced marginal tax rates - implemented between 1991 and 1994 helped the Swedish economy become more competitive and, therefore, increased its growth rate while lowering unemployment. [xxxi]

Samuelson, writing in Newsweek reminds us that inequality, up to a point, is both inevitable and desirable. It is precisely the prospect of doing well that “encourages people to work hard, develop new skills and take risks.” And unlike what many Americans might think, “Most of today’s rich have earned – not inherited – their status. Among the top 1%, more than four-fifths of their income comes from salaries and self-employment.” “The poor aren’t poor because the rich are richer”, Samuelson says, echoing what most economists believe; rather, “Their poverty reflects low skills, poor work habits or bad luck.” [xxxii]

The Sacramento Bee’s Daniel Weintraub identifies more flaws in comparing income changes among groups of people, specifically in this case, income quintiles. As he explained about the recent data from the Economic Policy Institute, and the Center on Budget and Policy Priorities in 2006 “The poorest fifth of families in Oklahoma and Florida, for instance, both earned about $15,400 after taxes (in 2002). But because the top fifth of families in Florida earned about $117,000 each while the top fifth in Oklahoma took home $97,700, Florida is ranked with a more unequal distribution of income than Oklahoma. Does that mean it is better to be poor in Oklahoma than in Florida?” Of course not, we should conclude. Poor Floridians are no worse off, and yet statistically they have a chance to become wealthier than their Oklahoma counterparts.

Another perversity of income distribution analysis is obvious by the following situation (also using data from 2002). The poorest fifth of California families had incomes of about $16,800 while the top fifth had incomes of about $127,500. Consider two possible scenarios for five years in the future. In the first, the poorest quintile barely rises, to $17,000, while the richest fifth creeps up to $135,000. In the second scenario, the poorest families climb to $20,000, but the richest families zoom up to $200,000. Inequality would be far greater in the second example, but yet it would clearly be better for both rich and poor families alike! Wealth is not a zero-sum game, since there is no limited amount of income available, requiring one group’s gains to come at the expense of another group. The New York Times’s Lowenstein agrees, pointing out that “the millions made by hedge-fund traders or by people who create companies like Google, don’t take away from other people’s wages. Indeed, each helps to make the pie bigger.” [xxxiii].

However, economists are quick to point out that these possible statistical failures have always existed in measuring incomes, while we’ve only recently experienced these wide income disparities. So it’s not enough just to find fault with how we measure quintiles, expanding pies, etc. It is a fact that back in the “good old days” income was more evenly distributed and the wealthy paid a much higher rate of tax than they do today, even with these same statistical challenges. Emmanuel Saez, economist at UC Berkeley, points out that the share of income going to the rich was stable to lower for about 50 years beginning in the 1920s. The top marginal tax rate in the 1950s topped out at 91%, and as late as 1980, it was 70% - compared to 35% in 2003.

Yet one statistical limitation that has also always been with us is that incomes are often measured by households or families, not per individual. But with today’s smaller families, this should mean that money goes a little farther, per person. According to the U.S. Census Bureau, the average family had 1.82 children in 2006, down from 2.09 kids in 1975 and 2.44 in 1965. Another way to see this trend is that the average family size was 3.7 people in 1964, 3.42 people in 1974, but only 3.14 in 2000. We can use this information to translate household income into per capita income, which is actually more useful. (http://www.usc.edu/schools/sppd/lusk/casden/research/data_folder/us_faincsize.pdf)

Let’s go back to page five’s data and calculate that the 1964 worker’s $104.85 weekly wage translated into $28.34 per person in his household. We figure that by simply dividing $104.85 by the 3.7 souls (average, at that time) per family. Using the same procedure, 1974’s worker had $31.92 per capita, while the average 2000 family earned $29.69 per capita. On a per capita basis, then, incomes (adjusted for inflation) declined only 7% from 1974 to 2000, compared to a 14.6% drop in the raw data. And while real incomes were down some 11% from 1964 to 2000, they were actually higher in 2000 when taking family size into account. We won’t even consider that most families have two wage earners today, versus only one 3 or 4 decades ago, making per capita income per household much higher now. That would introduce too many qualitative issues and subjective judgments, and is therefore better left to the sociologists. Suffice it to say that single-earner families aren’t nearly as bad off as we might have otherwise thought, once we look at income per family member.

But at any rate before we get too nostalgic for the good ol’ days of the 1970s, when a single-income factory job could support the average Joe’s family and the rich paid their fair share, let’s remember what went wrong in that decade. The country fell into the worst recession, with the highest unemployment rates, since the Great Depression of the 1930s. But unlike the 1930s when prices actually declined, we were also experiencing the worst inflation since just after WW II, and the highest interest rates of the century! It was an ugly time that (future) Federal Reserve Board chief Alan Greenspan famously referred to as “the Great Malaise.” The good news was that we were all more or less in the same boat, but the bad news was that the boat was sinking!

RAISE TAXES ON THE RICH!

1980 saw the departure of Jimmy Carter, and heavy skepticism about the Keynesian economics that had guided government policy since the 1930s. It brought instead Ronald Reagan and the supply-side policies of Arthur Laffer. Now everybody knows that those failed policies were little more than a give away to the rich. Problem is: that’s not really true, and we’ll take a look at that shortly.

But for now, let’s concede that while high tax rates discourage investment and growth, rates may have gone too far in the other direction since 1980; tax rates on the rich could stand being raised a bit. Newsweek’s Samuelson avers that tax cuts on capital gains and dividends during the Bush administration probably weren’t needed as an incentive for investment. A modest increase in those and marginal income taxes may well increase federal revenues and reduce class antagonism without significantly harming economic growth and jobs creation. Meanwhile, the loopholes and deductions that the wealthy employ to reduce their taxes continue to exacerbate income inequality in the U.S., as Summers and other economists maintain. One suspects that higher taxes on the wealthy would not be out of line, although just how much taxes could be raised without slowing our economic engine is unclear.

Complicating the whole issue of raising taxes on the rich are the unexpected realities that the rich already pay a huge chunk of all taxes collected, and that lowering tax rates on the wealthy may actually increase federal tax receipts rather than lower them at times. The IRS claims that in 2004 the top one percent of taxpayers paid 36.9% of all federal income taxes, [xxxiv] while Newsweek’s Samuelson adds that this small minority paid 25% of all federal taxes. The N.Y. Times Magazine’s Lowenstein similarly says that the richest 10% pay 70% of federal income taxes and 52% of all taxes.

Others claim that when you look at all of the various federal and state taxes, then the rich don’t pay such a large share. Kevin Hassett, of the American Enterprise Institute, estimates that “a family of four earning $50,000 pays exactly the same share of its income (30 percent) on taxes as one earning $150,000.” [xxxv] Hmmm… let’s call that the “glass half-empty” view, since if they both pay 30% of their income, doesn’t that mean that the richer of the two families pays three times as much, in terms of hard dollars going out the door? So either the wealthy pay a huge portion of the nation’s taxes, or they merely pay several times more than what normal folks pay - depending on what statistics you look at. But whatever you might think about the rich getting too rich, it’s hard to make a case that they don't pay much in taxes.

Meanwhile, 42.5 million Americans who filed a tax return in 2004 had no tax liability; in other words, they paid zero income tax. That was up from 32 million from just four years ago, incidentally. Add to that the 15 million Americans who weren’t even required to file a tax return. Then factor in how many dependents were included in this 57.5 million households that earned money but paid no income tax, and it turns out that about 120 million Americans (or 40% of the nation’s population) paid no income tax whatsoever. [xxxvi] These 120 million would include all of the “poor” along with a chunk of what might be considered “lower-middle income” Americans. Taken together, this raises questions about the “conventional wisdom” that “the rich get tax breaks while the poor and middle class pay more.”

What’s just as interesting is how tax rates and tax revenues have changed over the years in the U.S. and elsewhere. According to former Congressman (and avowed supply-sider) Jack Kemp, “in 1986, when the tax rate on capital gains was increased from 20% to 28%...Congressional revenue estimators hugely overestimated capital gain revenues.” Not only did the government’s tax revenues not go up as much as estimated, but “they actually declined.” The Congressional Budget Office (CBO) “overestimated capital gains realizations by $527 billion between 1989 and 1992.” Being a bit slow to learn from the CBO’s mistake, Congress’s Joint Committee on Taxation (JCT) projected that cutting the capital gains rate back to 20% from 28% in 1997 would reduce revenues by $21 billion. Instead, the lower tax rate increased revenues by $38 billion! [xxxvii] More recently, the politically-neutral CBO reported that the 2003 tax cuts, so vilified as a handout to the rich and a source of our huge deficits, actually raised tax revenues by $137 billion while lowering the federal deficit by $53 billion. Clearly, cutting tax rates can give the government more total tax revenue, while raising tax rates can lower total revenues - very counter-intuitive results. [xxxviii]

So what’s going on here? Well, this has to do with failing to take into account how people behave, or what economists refer to as the static vs. dynamic nature of tax revenues. With lower tax rates on their profits, investors are more willing to take risks, profits rise accordingly, and tax receipts on those profits – even at the lower rate – go up. Economics writer Bruce Bartlett provides more evidence of this phenomenon. In 1980, he writes, the top 1% of taxpayers paid 70% of their income to the federal government; and 19.3% of all individual federal income taxes (which totaled $246 billion) came from these folks. But the top rate was cut to 50% the next year, characterized by those on the left as “a massive give-away to the wealthy”. By 1986, however, the top 1% were paying 25.7% of all federal income taxes (which had now risen to $349 billion). [xxxix] That year, the top rate was slashed further to 28% (prompting even more liberal complaints). And yet by 1992 income taxes paid by individuals were way up (to $481 billion), now with 27.5% of income taxes being paid by the top 1%. [xl]

One could show this graphically on a diagram that plots maximum tax rate on one axis and the percentage of all income taxes paid by the wealthiest 1% (or total income taxes received) on the other axis (shown below). Of course, there were other things going on between 1980 and 1992 that help explain why the rich paid more taxes and why overall income taxes rose substantially even as tax rates dropped precipitously. The economy was in transition, the Cold War was ending, and technology was booming, among other factors. Between 1980 and 1992 GDP increased by 126%, while tax revenues only

increased 96%; could tax revenues have risen even more if rates hadn’t been cut in 1981 and 1986? Supply-side tax cuts don’t deserve all the credit.

As fair-minded economists urge us to recognize, other factors played a role in these amazing results. Yet it’s hard to deny the trend here: let people keep more of their earnings, and the increased incentive to earn may result in more money for the government. There’s nothing particularly fanciful about this concept. Certainly, tax cuts have resulted in the rich paying a greater share of income taxes. This presents politicians with a real conundrum: knowing that advocating “tax cuts for the rich” is a good way to commit political suicide, how do you deal with the fact that they may actually benefit everyone in the long run?

Economists show this phenomenon of tax cuts raising government revenues via the Laffer Curve, named after the godfather of supply-side economics, Dr. Arthur Laffer. Characterized as “voodoo economics” by George H.W. Bush in 1980, and much maligned by politicians and the press in subsequent years, the fact is that the Laffer Curve rather neatly illustrates a basic truism: after a certain point, raising tax rates reduces government tax revenues while lowering them can do the opposite. A zero tax rate creates zero revenue for the government, of course, but so does a 100% tax rate (nobody will work if they have to pay everything they earn to the government). Note the part of the curve to the right of point “T”; it slopes downward, looking very much like the twin graphs shown earlier. We know from the data that lower tax rates can increase total revenue and also the percentage of total taxes that the rich pay; the Laffer Curve is basically a modified and extended version of our earlier graphs.

The trick, of course, is to determine what the point of maximum revenues (T) is. Is it 70%? 50%? 28%? Something in between? Or a rate less than 28%? For that, there is no magic formula and misjudging that maximum point was one reason that U.S. supply-side policies in the 1980s were judged a failure. Furthermore, and in contrast to some of the conclusions suggested earlier, most economists now believe that “the positive effect of tax cuts on tax revenues is only feasible for very high tax rates, not the rates currently observed in most industrialized countries.” They point out the dangers of emphasizing “the Laffer curve story and how tax cuts pay for themselves. This view is not credible in the economics profession”. [xlii] Caveat acknowledged, but still: not valid at all? The evidence suggests otherwise. Finally, even as tax cuts may (or may not) have increased the total dollar amount of taxes paid by the wealthy, and may (or may not) have increased government revenues, it does seem that they allowed the rich to benefit more than other groups and, thus, did increase income inequality. So while some benefits of tax cuts seem obvious in light of the evidence, it would nevertheless seem prudent to question whether they are always the right answer, and have no downside to them.

SO HOW ABOUT THOSE SUPPLY-SIDE POLICIES?

Going on a bit of a tangent here, the seriously misunderstood fact is that supply-side policies as a whole were quite successful in the 1980s and 1990s, both in the U.S. and elsewhere. It is a fact that federal budget deficits soared during the Reagan years, when supply-side policies were supposed to create the opposite result. 1980s deficits dwarfed those of the 1970s; furthermore, they led to the dangerous “deficits don’t matter” mentality that has resulted in continued and even larger deficits. Budget deficits ranged from $120 billion to $220 billion during the Reagan years, compared to deficits in the $5 billion to $80 billion range in the 1970s. Deficits soared further during the First Bush administration, reaching nearly $300 billion in 1992. After the deficits steadily declined (and even went to surpluses) under President Clinton, they proceeded to skyrocket again under the Second Bush in the 2000s, with deficits approaching $500 billion even before the latest recession. In itself, this production of huge budget deficits alone – an admittedly distressing development - is seen as conclusive proof of the bankruptcy of supply-side policies.

But let’s first backtrack a bit and clarify what “supply-side policies” are. The term refers to a variety of actions that government can take in order to increase a nation’s aggregate (or total) supply of goods and services (or “stuff”). Making more stuff causes all kinds of good things to happen; most particularly, both inflation and unemployment rates go down, as implied in this diagram. The green line represents a nation’s total demand for all goods and services, from hamburgers and cars and iPods, to haircuts to acupuncture sessions to Lady Gaga tickets – and everything else we want to buy. AS stands for Aggregate Supply, or the total amount of all the burgers and cars and iPods and haircuts and pin pricking and tickets and everything else that sellers are willing and able to supply to the nation. The picture is clear enough: when AS moves to the left, we have less stuff (or output, or GDP) and prices rise. On the contrary, AS moving to the right, as shown by the big arrow, means that we have more stuff AND lower prices. The fancy technical term for this is: “a win/win situation”. Few people question the benefits that come from increasing aggregate supply; many, however, doubt the ability of the specific policies that have claimed to do so.

This whole supply-side idea attracted people’s attention towards the end of the 1970s, a decade which, as mentioned earlier, brought recessions (less stuff, higher unemployment) and higher prices. That’s known as stagflation, or in technical terms “a lose-lose situation.” Demand-side policies, which included altering government spending and taxation (fiscal policy) and altering money supply and interest rates (monetary policy) had failed to solve the decade’s problems, which can be neatly visualized in the following diagram (note: economists love diagrams!). As shown, average inflation rates had

climbed from about 4% in the 1960s to about 8% in the ‘70s and early ‘80s, while unemployment rates rose from about 5% to around 7-8% at the same time (in other words, from line PC1 to PC3).

Demand-side policies weren’t cutting it, and so the Reagan administration thought supply-side deserved a shot. But just how DO you encourage an economy to produce more stuff? Well, there are a dozen or so specific supply-side “levers” which will (or can) help do the trick. In approximate order of importance, they include:

Tax cuts, but specifically reductions in marginal tax rates and capital-gains tax rates. These (as opposed to cuts in sales taxes, excise taxes, or one-time tax rebates) encourage people to work harder, businesses to invest more in existing businesses, and entrepreneurs to start new businesses since they get to keep a bigger share of their added income, with the end result of more stuff being produced.
Deregulation or the reduction of government interference in business. The fewer the rules, regulations, bureaucracy, fees, etc., the easier it is to conduct business and make more stuff.
Free trade, by definition allows more stuff into the country at cheaper prices, which of course gives us more stuff at cheaper prices.
Better training and education, which leads to a more skilled and therefore more productive workforce that then can make more and better stuff.
Improving infrastructure such as roads, airports, electrical grids, phone systems, schools, and all the other things that are required for a productive, growing economy trying to make more stuff.
Encourage saving, which then creates a bigger pool of money available for investment, leading – ceteris paribus – to lower interest rates and therefore more investment in factories, machinery, etc., and ultimately more stuff being produced.
Reduce discrimination, especially in the workforce. The idea here is that you want the most qualified person doing each job, whether they’re male, female, black, white, gay, straight, or whatever. With jobs going to whoever can do them best, society ends up with…..more and/or better stuff.

Now sometimes these levers can conflict with one another, or with other goals that are important to society. For example, cutting taxes can leave the government with less money for improving infrastructure or education. Or, deregulation might make it harder for government to reduce discrimination in the workplace. Similarly, free trade can cause job losses among domestic workers, while too much deregulation can reduce critical consumer safeguards, such as a weakened FDA that can’t adequately monitor Chinese imports. Applying supply-side measures can be tricky business indeed, which brings us (finally!) back to the whole budget deficits thing.

Even though the CBO data referenced earlier shows an increase in personal income tax revenues between 1980 and 1986, and 1986 to 1992, government deficits soared between 1980 and 1992. As the following diagram shows, tax receipts dipped in the early-‘80s recession, but then rebounded nicely thereafter. However, government spending never did dip, as federal outlays continually outstripped rising federal receipts during the 1980s. Let’s cut to the chase: who’s to blame for these monstrous deficits? [xliii] The answer depends on who you listen to (does this surprise you?).

Critics of the Reagan administration – including a top former administration insider – insist that Reagan and his crew knew all along that tax cuts would result in huge deficits. But they went ahead with them anyway, lying to the public that the Laffer Curve showed tax cuts would bring higher revenues and, thus, no deficits. Others claim that, whether the Laffer Curve was misinterpreted or not, Reagan was blameless in the whole deficits issue.

rdiAccording to Bob Packwood, chairman of the Senate Finance Committee in the 1980s: “The Reagan tax, he got a bum rap for it.” “In July of 1981, all of the budget projections showed us having immense budget surpluses by 1985! The CBO, the OMB, the JCT, and most of the private places showed anywhere from $160 billion to $250 billion surpluses.” Reagan believed that if Congress didn’t return those surpluses to the taxpayers, Congress would have simply increased their spending even more. “No one foresaw…that the recession was coming, which caused our revenues to drop. No one foresaw the rapid drop of inflation because the tax code was not then indexed. We could count on getting a 1.7% increase in revenues for each 1% of inflation. And we were running 13%, 14%, 15% inflation and projecting that out until 1985, so no wonder we thought we were going to have surpluses! Then inflation fell to 5.5% and the recession came.” Packwood continues: “In 1982, however, when we were in the recession and we knew we had to narrow the deficit, Congress made a promise to Reagan: accept $1 in tax increases and we’ll give you $3 in spending decreases. He signed the tax bill. He never got the spending cuts (that Congress promised).” [xliv]

So - Reagan and his boys were “blameless” in this deficits matter? Somehow that doesn’t sound quite right either, especially considering that Packwood, like Reagan, was a Republican. One suspects that the truth lies somewhere in the middle. We also need to keep in mind, however, that not everything Reagan did was “by the book”, supply-side wise. He did, after all, come into office with a solid mandate to do something about the USSR and communism. Reagan made it clear that he wanted the U.S. to step up the pressure on the “Evil Empire” and end the Cold War, and people voted him in with this understanding. With all his campaigning against government spending, the one clear exception was in the area of defense spending, which rose

http://www.uri.edu/artsci/newecn/Classes/Art/NTI/Mac/1980s/1980sA.html

significantly on his watch. As this chart shows, defense spending didn’t rise all that much relative to our total economy, and in fact remained at historically modest levels in the 1980s. And we’ll leave it to others to decide once and for all whether Reagan’s increased defense spending was the straw that finally broke the USSR’s back, or whether the USSR would have died of internal decay anyway. What we know for sure is that increased defense spending was a major factor in the Reagan deficits, and also that this was not a supply-side policy.

Finally, it is beyond the scope of this extract to posit the precise degree that Reagan and supply-side policies, vs. Congress and unforeseeable circumstances, were culpable for the 1980s deficits. Here we will choose the middle road: probably supply-side policies were partly to blame for the deficits, but almost certainly not as much as is generally believed.

It is also true that policies like the 1981 Tax Reform Act, which allowed more Americans to save via tax-advantaged retirement accounts, failed to increase the overall savings rate - another supposed failure of supply-side policies. According to Nouriel Roubini, “The private saving rate continued to decline slowly in the 1980s. In the 1973-1980, private saving averaged 7.8 percent of the economy, and dropped to 6.9% in 1986 and 4.8% in 1989. In other words, the saving rate was significantly lower after the 1981 tax cut than before it.” [xlv] One might suppose that the decade’s acceleration into mindless consumerism (which continues even today) overpowered the new incentives to save, but that is just speculation. At any rate, the bottom line is that all of the supply-side policies did not produce the intended results. Yet taken together, there is overwhelming evidence that the policies were successful. Here we will consider three powerful pieces of evidence to support this view.

First is the story of what happened in Delaware between 1979 and 1988, when the state’s “top income tax rate was reduced to 7.7% from 19.8%” After the rate was cut, “personal income tax revenue doubled and employment increased 38%. At the same time, the lowest-income 11% of taxpayers were removed from the tax rolls.” Also, Delaware’s “welfare caseload fell by 40%; the state’s bond rating (in 1979 the lowest in the nation) rose six times, and the unemployment rate fell to two percentage points below the national average, having begun two percentage points above it.” Wow! But there’s more. “Since 1980”, former Delaware governor Pete DuPont wrote, “employment in Delaware’s private sector has grown 67% faster than that of the average state and its personal income advanced 22% more rapidly that the U.S. average. In 1992, Delaware’s poverty rate was the lowest of all 50 states.” [xlvi] Wow again!

Behind all of this good news were of course the tax cuts, but also state spending “restraints” – read: they slashed wasteful spending – along with deregulation of the financial services industry and bi-partisan support of the total package. (Republicans and Democrats working together; hard to imagine today!) Probably, Delaware benefited from factors other than its adoption of supply-side policies and an inexplicable case of political goodwill, such as its close proximity to New York City and who knows what else. Nevertheless, its 1980s case study earns it poster-state stature for supply-siders.

Our second piece of evidence is as simple as it is unbiased. Go back to the Phillips Curve of a few pages ago, and look at what happened to inflation rates and unemployment rates in the U.S. from 1981 to 1992. Those rates peaked about the time that Reagan and supply-side policies entered the national picture. The Phillips Curve stayed high for the first couple of years of Reagan’s administration, which is hardly surprising. Economic policies, if they’re going to work at all, usually take several months to several years to be approved, implemented, and then do their thing. By 1984, the economy was clearly heading in the right direction, and continued to do so for many years thereafter, even through the Clinton years. Clinton, of course, is generally credited for getting the economy back on course after the 1992 recession and ultimately returning the nation to budget surpluses. But point of clarification: a great many people who knew what was going on at the time don’t exactly remember it that way.

Even before the election of 1992, the Bush administration and the Federal Reserve had already put the policy changes into place that would end the recession. But as they say, timing is everything, and the mild 1991-1992 recession ended just after Bill Clinton beat George H.W. Bush (who lost largely on the basis of the weak economy) in November. This was before Clinton had a chance to take any economic actions whatsoever. Clinton was a good President, with amazing skills in a variety of areas. But he surely didn’t end the recession, and his economic policies consisted mostly of not doing anything that would derail the booming economy he inherited from his predecessors.

As Lawrence Kudlow and Stephen Moore wrote in 2000, when the U.S. broke the record for the longest business cycle expansion in its history (previous record: 106 months) “America’s economic turnaround started in the early 1980s, a decade before Bill Clinton arrived in Washington. It was Reagan’s supply-side economic ideas…which unleashed a great wave of entrepreneurial-technological innovation that transformed and restructured the economy, resulting in a long boom of prosperity.” Clinton, they agree “deserves credit for keeping the expansion moving. Along with Robert Rubin, his policies extended disinflation (low inflation), creating a countrywide tax cut effect that offset his mistaken 1993 tax increase. Free-trade measures during the mid-1990s also constituted a tax-cut stimulus effect.”[xlvii] Budget surpluses that came in Clinton’s second term might similarly be seen more as a result of the continued economic growth that earlier policies had made possible, rather than by any specific actions that Clinton can claim to have taken. He was President at a good time in our country’s history. Given the choice between being smart and being lucky, lucky often looks better. Clinton had the advantage of being both, but in any case, the 1981-1992 economic turnaround in the U.S. hints solidly at the efficacy of supply-side policies.

The third and final item comes from perhaps the most credible of sources. Robert Lucas won the Nobel Price in Economics in 1995, and wrote the following that year: “When I finished graduate school in 1963, I believed that the single most desirable change in the U.S. tax structure would be the taxation of capital gains as ordinary income.” In other words, investors (the rich) should pay tax rates on the profits of their investments, or so a young Lucas believed. Lucas continued “I now believe that neither capital gains nor any of the income from capital should be taxed at all.” Gee, that’s a pretty big turn around. But let him continue….

“I have called this paper an analytical review of ‘supply-side economics’, a term associated in the United States with extravagant claims about the effects of change in the tax structure on capital accumulation. Under what I view as conservative assumptions, I estimated that eliminating capital income taxation would increase capital stock by about 35%.” Now here comes the punch line:

“The supply side economists, if that is the right term for those whose research we have been discussing, have delivered the largest free lunch that I have seen in 25 years of this business, and I believe we would be a better society if we followed their advice. The attraction of (supply-side economics) is not that it is pretty – though it can be – but that, given half a chance, it works.” [xlviii]

In a field where the bedrock principle is “trade-offs” – everything has a cost and there’s no such thing as a “free lunch” – Lucas’s comments are nothing less than astonishing. And remember: his aren’t the opinions of a Republican governor, a newspaper hack, or a high school economics teacher, but rather someone who was recognized by the Nobel committee for his work on the topic.

Certainly in all cases there were other important developments that prevent supply-side economics from taking full credit. Indeed, critics claim that these other developments (end of the Cold War, lower commodity prices, the explosion in technology, advances in communication, improved monetary policy by the Fed, etc.) deserve the credit more than supply-side policies do. These factors unquestionably aided in reducing both unemployment and inflation in the 1980s and 1990s. On the other hand, it is also true that most of those developments can be traced back to, or were at least aided by, supply-side policies. And so it is: economists and politicians are fully capable of arguing over most anything. But when all’s said and done, the smart money ought to go with Robert Lucas – he of the Nobel Prize in Economics. Supply-side policies may have provided the closest thing the real world has to a genuinely free lunch.

* * * * * * * * * * * * *

WHAT IT ALL MEANS

Income inequality exists in the U.S. and has grown in recent decades.

But it’s not nearly as bad as folks would have you believe. The rich are much better off today than they were 30 or 40 years ago. But most poor Americans are better off today than poor Americans were back then, and the same can be said about most middle-class Americans, even if their gains have lagged behind those of the rich. The familiar pie analogy helps. Virtually every American has a bigger piece of pie today than in the past. The rich have a (much) bigger share of the pie, but since the pie itself has expanded dramatically, their bigger share hasn’t come at the expense of others. Some of the statistics cited as showing the opposite are unrealistic, comparing apples to oranges.

While the “rich are getting richer”, those in lower income categories are hardly confined to staying there. The dynamics of the U.S. economy are such that people are able to rise up from lower to higher income levels; yesterday’s low income Americans are often today’s middle-class Americans. Similarly, while the Rockefellers, Kennedys, Hiltons, et al are living larger today than they ever were, a large chunk of today’s wealthy Americans worked their way to the top fairly recently. As a result, we end up with crass Donald Trumps, grossly overpaid CEOs, and $15 million-a-year baseball players. But that’s a small cost for the opportunities available to all, rather the equivalent of the price we grudgingly pay (e.g. Nazi party parades and filthy hip-hop music) for freedom of speech in this country.

There are reasons why the gains for lower income Americans haven’t kept up with those of the wealthy, and they really don’t have that much to do with tax cuts for the rich. Wealthy Americans pay much more tax in absolute dollar terms than Americans of other income levels. The much bigger issue is that low and middle-income Americans live in a world that is vastly more inter-connected today than in the 1970s, and modern realities deny them the good-paying jobs that were formerly available even to the poorly educated, almost as an American birthright. The Americans that economist Richard Freeman called overeducated in 1976 “are plainly undereducated today. Only about a third of the population graduates from college. Among the poor, there has been only a very slight increase in college-graduation rates.”[xlix] Foreign workers are often better educated, have a stronger work ethic, and will work for less than Americans. Jobs go to the “highest bidder” these days, and more and more, that’s not Americans. It’s no using ruing the trend or pining for the past, because it is what it is and we’re not going back any time soon.

The answer, as most who understand the issues see it, is not to penalize the successful for becoming wealthy. In more cases than not, they got where they are fair and square. As Gary Becker, a Nobel-winning economist states, “common sense tells you that a small increase in taxes when rates are relatively low, as they are now, isn’t going to curb people’s animal spirits. Higher taxes in and of themselves, however, won’t cure inequality.” Freeman concurs, adding that “if you’re worried about inequality, it’s hard to see any alternative (to providing Americans a better education). Hamburger flippers simply don’t command a high wage. We can pass laws to change that — a minimum price for cheeseburgers, maybe — or we can, finally, invest in teaching the flippers to do something else.” [l] So fine – let us raise the tax rates that the Wall Street crowd pays, and raise the top income tax rates that the exorbitantly wealthy pay. That will make everybody feel better, and may even help with the deficits. But that’s not going to solve the whole problem, nor even a significant part of it.

The answer, as the author sees it, also has to include some sea change in attitudes among Americans, especially young Americans. Until the sense of entitlement, the apathy, the ideas of “give me” and “what’s the least I need to do?” that are too commonplace in the U.S. today change, the pressures that keep lower income Americans down won’t change much.

Income inequality exists in the U.S. and has grown in recent decades.

But it’s not nearly as bad as folks would have you believe. Déjà vu! But this time we mean that income inequality isn’t such a bad thing. The “perfect world” that the Lorenz Curve seeks to depict is a world of lower national growth and less opportunity for individual advancement. The increased inequality in the U.S. has its roots in the nation’s tradition of individual independence and self-sufficiency. “Leave me alone and let me see what I can do!” is a particularly American sentiment, one that is not always shared or fully understood by our European cousins and others around the world.

The debate on the inequality issue might best be characterized by those on one side who want the U.S. to be a place where everyone is guaranteed a good living, no matter what. On the other side are those who say it should be a place where everyone is guaranteed a fair shot at having a good living. There’s a big difference. Virtually every American under our current system gets enough to eat, a place to sleep, a decent education, and opportunities to make something of themselves. With smart choices, hard work, and just a little luck, they have a good chance for a rosy future. On the other hand, if they’re lazy, make bad choices, and/or waste their time in school, then society shouldn’t be held to account for their failure or the fact that they can’t make ends meet on a minimum wage job. Yes, some folks just can’t catch a break despite doing everything right. We should all want to help them as much as possible, but they are the exception rather than the rule.

By the way, let’s don’t even bother with the whole “not all kids get the same education or have the same home life” argument. While that is certainly true, it almost doesn’t even matter. Again, as a veteran inner-city high school teacher, the author has seen countless kids from low-income homes, from non-English speaking homes, kids whose parents are addicts, in jail or dead, kids who are literally living on the streets, kids who go to low-performing schools. And these kids – if they want, if they try, if they’re motivated - they make it. They end up at UCLA, at Harvard, or at lesser universities, but they make it. Take, as one example, Fabian Núñez, born of immigrant Mexican parents who lived in Tijuana before moving to a low-income neighborhood near downtown San Diego in the 1970s. Núñez, who would surely protest many of the conclusions of this paper, was until recently Speaker of the State Assembly in California. Núñez, and folks who share his political views, may well argue for a U.S. with more equality, while missing the larger point that it is the competitive, relatively unsheltered nature of the place that is largely responsible for so many success stories like his own.

America’s income inequality, aside from reflecting our national character, has also increased as a result of the supply-side mentality that has dominated U.S. politics for most of the past 25 years. If that sounds like an accusation, it’s not. The preponderance of evidence shows that supply-side policies have benefited Americans – some more than others, of course. But the main features of America’s economy for two and a half decades beginning in 1983 were relatively stable prices, low unemployment, and an improved standard of living for virtually everyone. We take those for granted now, forgetting what things were really like in the 1970s, and are therefore free to find fault in less critical issues such as increased inequality.

Then there’s the stock market; up more than 1000% since Ronald Reagan first took office, a clear sign of the nation’s healthy economy. Yet another boon for the wealthy? Again, yes, but also NO. 401(k) retirement plans alone, created as part of the Reagan revolution in 1981, now contain over $2 trillion dollars, much of which is invested in stocks by some 45 million average Joes and Janes.[li] And don’t forget all the hundreds of billions in IRAs, 403(b), 457(b), and SEP retirement plans, not to mention the countless billions in individual investment accounts. Americans’ investment wealth has soared in the last couple of decades, and not just for rich Americans. More than half of all Americans now own stock either directly, or indirectly through retirement plans and mutual funds. [lii]

Robert J. Samuelson, this time writing in his 2001 book Untruth, points out that between 1989 and 1995, stock ownership rose from 33% to 48% for middle-income families, while nearly doubling (from 13% to 25%) among low-income families. Americans’ greatest source of wealth has traditionally been their homes; real estate net worth was more than twice the value of stock wealth in 1990. But by 1997, stock wealth was 30% greater than that in real estate.

Trickle down economics did work and in all probability will continue to work – for those who are smart enough and hard-working enough to deal with a changing, competitive, global economy. Yes, it is harder now for a lot of folks in this new environment, but taxing the rich won’t bring back the good ol’ days and neither will playing ostrich and trying to hide from the rest of the world. That world sees our American Dream clearly and constantly in this modern age of global communication, technology, and entertainment. They’re hungry to have our lifestyle for themselves, and they’re going to take it from those among us who are foolish enough to count on anyone other than themselves to preserve their standard of living. Income is unequally distributed; it’s a fact of life. And mostly, that’s not so bad.

Jon S. Strebler

October 17, 2007

Rioting in London

2011-08-10T13:41:00.000-07:00

What's up with that? Conservative, secure England shouldn't have youths rampaging about, burning, looting, and beating in cities and shires. It mostly doesn't seem to be about race, although that was initially the spark that set things off. A lot of it's about plain old hooliganism - bored youngsters see a little anarchy going down and they want to get in on the fun, score a little loot!

But if you listen to these youths, such as the pair of girls interviewed by the media the last few days, it's more about class warfare. Even though merry old England is a might better place to come of age than, say Somalia or Afghanistan, the reality is that a lot of people are hurting there financially. Wages aren't going up, but costs of living are. Young people especially are having a hard time finding work. And just like many other countries these days (e.g. the US, Greece, Spain, Italy) governments are cutting back on their spending whilst contemplating higher taxes. Except, it is believed, on the wealthy.

And so the government of Britain, these youths and probably many other Brits believe, is all about looking after the rich and once again slamming the poor and middle class. These youths hate the government for this, and they smash and burn businesses in their own neighborhoods. Because anybody who can afford to have a little business is, in their minds, "rich". Well, hating the rich has always been a popular pastime everywhere just as it is today, even though there are about a half dozen better reasons for our economic ills these days other than the rich. But I'll never win that argument because hating on the rich is so universal, so let's just move on to the main point here.

It occurs to me that this sort of anarchy and violence, which happened a short while ago in Greece, is likely to become more and more common throughout the world in the coming months and years. The U.S. is more than likely going to be one of the many places this happens, and I'm concerned that the protesting and rioting and class warfare may end up being a lot worse than people can imagine. Call me an alarmist (once again), but here's my thinking.

It all goes back to issues and themes discussed in these blogs over the months. There was "The Party's Over, and People Don't Get It" back in February, which talked about how our excessive spending and our fixation with gross materialism were about to come to a screeching halt, even as power (and wealth) was shifting to other parts of the globe. Another problem, implied there but discussed in more detail in my earlier "Income Inequality in America" blog, was the sense of entitlement so many Americans (especially youngsters) felt. So they're just not going to accept that the party's over; can't conceive of it, won't "allow" it to be over. There arises a potentially very dangerous juxtaposition: unpleasant reality confronting unrealistic oblivion.

In April's "Train Wreck Ahead" I wrote about the near hopelessness of dealing successfully with the nation's debt, and even suggested that defaulting on that debt was no longer unthinkable. That actually almost happened on August 2nd, you surely remember. People would be fleeing the US dollar, getting into gold, silver, and the Swiss franc, sooner or later pulling out of the stock market and sending it lower, I suggested. Sadly, those assessments were mostly correct, with gold and the Swiss franc absolutely skyrocketing since (silver - not so much), and the stock market recently dropping with a vengeance. These are signs of a the wheels falling off of a dysfunctional world monetary system, an unraveling of key parts of the world's financial fabric.

Then in last month's "Debt and Money", the main point was that our government's attempts to deal with the debt issue were bound to be "a big negative for the economy". The big risk was that cutting back on government spending, while raising taxes, could very well push a wobbly economy back into recession - one that could easily be as bad as the 2008-2009 recession. The second point there was that the Fed would do everything possible to fight such a recession, which would tend to (again) push the value of the US dollar down. Translation: higher prices, inflation, even in a weak economy. Yuck!

The latest addition to all this angst is the implosion that is taking place in Europe right now. First, it was just the imprudent, silly Greeks and Irish; OK, maybe Spain and Portugal too. Now, Italy is on the ropes, having just accepted harsh conditions for a bailout by the European Central Bank (a la Greece a few weeks ago). And then today, news that France, formerly one of the stronger European economies, is experiencing financial "difficulties". And Britain itself isn't that much stronger than France these days. The bottom line is that Europe as a whole, about as powerful economically as the US, seems to be in even worse financial shape than we are!

With an unsolvable US debt situation given current political realities, an unraveling of seven decades of confidence in the US dollar, the lynchpin of the world's financial system, and equally daunting economic problems in Europe, more than a few respected economists and market analysts are talking about the possibility of a harsh new recession hitting worldwide. For the most part, this is without even considering the increased rumblings that China's economy, which is suffering from a whole different set of problems than western economies, is poised for a major crisis. Mark Zandi, chief market analyst for Moody's, hardly known in the business as a pessimist, opined yesterday that a recession is more than just an outside possibility at this point. If it were to occur, he added, it could be expected to be even more severe and longer lasting than the horrible recession we just recently stumbled out of, since it likely would involve serious economic issues (of varying types) in all the world's major economies.

Yet, there's hope. Former Senator Alan Simpson described our brightest spot this way in TIME Magazine recently: "We're the healthiest horse in the glue factory". A less politically-correct way to say the same thing is that the U.S. is winning the least ugly girl contest. So our dollar and our creditworthiness ain't what they used to be, but then whose is? Well, there's the Swiss, but their economy is so minuscule that they're not going to be able to accommodate the trillions of dollars of wealth looking for a safe haven. So maybe the US dollar will actually strengthen in coming months, as and if things worsen worldwide, then we'd be somewhat insulated from the economic chaos. And maybe we won't slip back into a nastier recession. Let us pray....

But back to where we started. The dollar's "least ugly girl" status and blind faith notwithstanding, the odds continue to favor harder economic times ahead, and lower standards of living for most Americans, if not the whole world. And to reiterate an earlier blog's judgment, life in this (possible) upcoming Depression will be much harder on Americans than it was in the 1930s. Back then - excuse me for saying so - people were a lot tougher; they had much less to start off with, and many were still only a few years removed from being pioneers or emigrants to this country. They were used to getting by on much less than we are today, so they sucked it up, toughed it out, got through it.

This isn't the 1930s, and Americans aren't the hardy pioneer/emigrant stock they used to be. They are, not to beat that dead horse too much, spoiled by decades of having it all and of being "entitled" to the American way of life as they came to understand it. That way of life had nothing to do with getting by on less, being unable to get a decent job, fending for themselves. Instead, they will look for - demand, actually - that somebody fix things, and take care of them. But there will be no quick fix and nobody to ride in and rescue them.

So many Americans won't suck it up, tough it out, and get through it. They will, I fear, strike out blindly against the injustice of a life without; strike out against the government, against the rich, against people of a different color or religion than theirs. There will be riots, looting, attacks on fellow Americans; leaders who share their anger will come to prominence, and many of them will not be good people with love in their hearts. This is what history tells us is likely to happen.

Once again, you should hope that my pessimistic self is wrong. I do. But at the same time, think about what you can do should these things come to pass. I do.

Debt and Money

2011-07-25T23:08:00.000-07:00

A lot has transpired since I wrote Train Wreck Ahead back in April, and now the whole world is wise to what a disaster the U.S. debt problem is. Republicans and Democrats alike are sticking to their partisan guns so far and refusing to act for the greater good. None of this is news to anyone not living in a cave the last few weeks. Neither is the likelihood that, at the very last minute, they’ll probably find a way to compromise and avoid the debacle of defaulting on the nation’s debt come August 2^nd.

What form such a compromise will take is easy enough to guess. Most likely, there will be major cuts to discretionary government spending, some historic reductions in Social Security, Medicare, and other entitlement programs, and some new taxes. My brother-in-law just told me about a proposed tax of 1% on every bank transaction we make; is that for real? Real or not and whatever the eventual mix of spending cuts vs. tax increases, the bottom line is that the struggling U.S. economy will take a pretty big hit. Virtually any conceivable deficit deal will be a big negative for the economy, at least in the short run. In economics-speak, reduced government spending and higher taxes are called contractionary fiscal policy, which normally lowers the country’s GDP while increasing unemployment – at least in the short-run. This is a very troubling prospect, given the economy's fragile status these days.

But the hope is that, even with the negative short-run impact of such a policy, it will send the message that the U.S. is serious about getting its financial house in order. If that message is believed, then foreigners, businesses, and consumers will all breathe a bit easier and (we’re all hoping) be more willing to invest and spend in the U.S. That, in the long-run, will finally pull the country out of the current “growth recession” and confirm its position as the world’s premiere economy and best credit rating. That’s the plan, anyway.

The big risk, however, is that implementing contractionary fiscal policy at this point could send the nation into an economic tailspin, long-term hopes notwithstanding. Politicians simply cannot allow this, as it would result in most of them getting voted out of office in response to the soaring unemployment and another housing market crash that would ensue. Additionally, a swooning economy would make the country’s deficit and debt problems that much worse, undoing all the good accomplished by whatever deficit deal they’re able to come up with now.

But the Federal Reserve will not allow such a scenario; Fed Chairman Ben Bernanke has made it clear many times over the years that he’ll do whatever it takes to keep the economy afloat. So it is very clear that there’s only one solution to this apparent dilemma: the Fed will balance this contractionary fiscal policy with its own expansionary monetary policy. In other words, while Congress and the President are stepping on the fiscal brakes, the Fed will be stomping on the monetary gas pedal. In plain English, that means the Fed will be sending hundreds of billions of dollars out into the country and keeping interest rates near zero, hoping that all that cheap money will keep people buying and, therefore, keep Americans working. If everything works just right, then the debt and deficit are handled (somewhat), without the economy careening back into a serious recession. Winning!

That’s if everything works just right. Misjudgments, unexpected market reactions, unwelcome world events, or just plain bad luck could easily muck thing up, however. How? Well, maybe all the dollars the Fed pumps out aren’t enough to keep the economy chugging along. Or maybe all the dollars end up causing high inflation. Maybe China’s economy implodes, as some worry. Or maybe another of a dozen possible things goes wrong. Of course, we can hardly rule out the possibility that Congress doesn’t come up with an debt agreement in time, and the nation defaults on its debt. But the most likely problem is similar to what I laid out back in April.

Backed into a corner and forced to pump hundreds of billions of additional dollars, the U.S risks people losing faith in its currency. The more money out there, the less each unit of money is worth. Here’s a very over-simplified example to explain: Suppose a country has 100 loaves of bread and nothing else. And that country has $100 in money supply. Loaves of bread will sell for $1 each ($100 divided by 100 loaves).

Now suppose the money supply increases to $200, but there’s still only 100 loaves of bread. People have extra money; they’ll want to buy more with it. But there is no more. So they’re willing to pay more for the limited amount of bread and before you know it, bread will cost $2 a loaf. One dollar, which used to be equal to a loaf of bread, is now only worth half a loaf. The dollar is worth less simply because there are more of them.

And that means, getting back to the real world with the Fed pumping out God-only-knows how many more dollars to keep the economy afloat, that U.S. dollars will probably be worth less. This will probably make people (especially foreigners) less willing to hold them and – well, look back to what I wrote about that in April.

True - it doesn’t have to end up this way. Perhaps the Fed's increase of cash is nicely balanced by reduced demand from government and consumers, and the actual supply of dollars out there doesn’t change much. Or perhaps, even with the dollar losing its value it is still seen as the least horrible option, considering the problems with Europe’s economy and currency, and uncertainties elsewhere in the world. Neither the stock market nor the bond market seem worried about a default or a declining U.S. dollar, after all, as both are close to multi-year highs. Stock and especially bond investors are known for seeing trouble coming long before it materializes, so if they’re not worried, maybe we shouldn’t be either?

Fine; fair enough. But I’d rather be safe than sorry. And even as the stock and bond markets signal that all’s well, have you noticed that gold, silver, and the Swiss franc have resumed their relentless moves higher? Remember that in April I suggested investors the world over would be buying those more and more as our financial “train wreck” gradually unfolded. After a sharp drop in price (predicted back in April), silver is now marching higher again. Meanwhile, gold and the Swiss franc have been persistently making new all-time highs. That’s “safe haven” buying; neither gold, silver, nor Swiss francs pay interest or dividends, unlike stocks and bonds. Investors around the world are buying them simply out of concern for the eroding value of dollars and euros; they see gold, silver, and Swiss francs as among the very few safe options available anymore.

* * * * * * * * * * * *

Let’s bottom-line things here now, combining ideas and themes from several of my recent blogs. The U.S. is in a terrible financial mess and will not be getting out of it anytime soon. Our standard of living for the last few decades, which actually meant living way beyond our means, is about to change dramatically. To everyone who was used to “having it all” the last 20 or 30 years and who is downright outraged at how that life is being “taken” from them now – wake up! We, as a nation, didn’t deserve – hadn’t earned – all our material prosperity, and now are simply being presented with the bill. March in the streets, complain bitterly about our traitorous politicians, hold your breath ‘til you turn blue – but none of that will change this reality.

Maybe the debt will finally be dealt with intelligently; maybe the U.S. dollar won’t continue its inexorable decline with all that implies for the nation and for us. Maybe the stock and bond markets have got it right, and you still don’t have to figure out how to invest in gold, silver, and the Swiss franc.

Or maybe not.

JSS

July 25, 2011

Train Wreck Ahead

2011-04-25T20:00:00.000-07:00

Regular visitors to this site are aware of my concerns about the serious economic problems confronting the U.S. Lately though, it seems we’ve passed a tipping point of sorts, with potential implications more ominous than the 2008 crisis that almost brought the country (and the world) to its knees. Forgive me for sounding alarmist, but you really need to know what’s going on and what, if anything, you can do about it.

Should you care about my opinion? Well, before becoming an economics teacher, I spent 15 years in the investments business in the 1970s and ‘80s: as a market analyst, a commodities trader, and ultimately a V.P. with a major brokerage firm. There were also 15 years teaching finance and investments courses at colleges in the 80’s and 90’s. And studying and teaching economics for the last 20 years. Plus, I’m not selling anything: not writing a book, running for office, or pushing an investment. So yes, you might want to listen.

Contrary to my normally wordy nature, I’m going to cut to the chase here. The U.S. dollar faces a huge loss of confidence worldwide. Exacerbating the trend in that direction were several remarkable and very disturbing things that happened in the last few weeks. Congress fought like cats and dogs until the very last minute to come up with a budget that cut the deficit by a measly $38 billion. They almost shut the federal government down because they couldn’t agree on whether to cut spending by $30 billion or $40 billion – this with a total budget deficit of $1,655 billion. Right then and there, it became obvious to me and anybody else watching that there is no way that Congress is going to get our ruinous debt under control. Will not happen. This is a big problem, but one that most Americans don’t really understand or care much about.

The key to taming this runaway debt train is to make major changes (cuts, basically) to the “entitlement” programs, e.g. Social Security, Medicare, and Medicaid. But nobody wants to do it. A recent ABC poll shows that 78% of all Americans are opposed to such changes. So that’s just not going to happen, at least not any time soon. Spending on health care, welfare, and pensions – a similar category to the entitlements we’re talking about – accounted for just over 40% of all federal spending in the 1970s and 80s. It’s risen sharply in the last 20 years, however, and now eats up over 60% of all federal dollars. The trend is higher still and nobody has the cajones to stop it.

None of this has been lost on the financial markets, as the dollar has swooned and gold and silver have soared. These trends accelerated last week after Standard and Poor’s signaled that for the first time ever, the United States credit rating was in danger of being downgraded. In other words, investors may soon be less willing to loan Uncle Sam more money, which would present a huge problem to a country addicted to borrowing and unable to cut more than $38 billion out of its deficit. Meanwhile, the other day for the first time I heard relatively intelligent people talking about the outside possibility of the U.S. defaulting on its debt. That possibility, which I previously would have estimated at 1 in 100, may now be as high as 1 in 4. Still unlikely, but not such a long-shot anymore.

All of this is incredibly disturbing, as the U.S. dollar is the lynchpin of the world’s economy and U.S. debt is the world’s “gold standard”. Let me put a finer point on it: if the world loses confidence in the U.S. dollar and our debt, it’s game over, the house of cards tumbles – pick your metaphor. I’m not even going to get into all the ramifications, but they are ugly and, again – ominous - and could have us looking back rather fondly at the gentler times of 2008’s Great Recession. At the very least, these developments imply that the U.S.’s standing in the world, and our own standard of living, are certain to continue sliding for many years to come. It’s very sad, actually, having front row seats for this train wreck that is slowly but surely developing.

What can you do about it? Well, encouraging our politicians to get real and get over their political selves would be one thing. But on a more personal level of protecting yourself, you should re-evaluate your investments. Don’t have any? Well geez, you may be in for a tough ride, as the general cost of living will probably rise sharply from here, with incomes lagging far behind. But for the rest of you, here’s some ideas:

The biggest thing is to diversify out of dollars. Money in the bank, money in bonds – those are likely to lose value in the future, perhaps dramatically so. That’s why the stock market, oil, precious metals, and certain foreign currencies are going up. Investors are shifting out of dollars and fleeing into anything that has real, intrinsic value. Now if things start getting ugly, the U.S. stock market’s not going to be happy, so you don’t want to be heavily invested there. Foreign markets? Asian and the BRIC markets should fare better, but remember: “when they raid the whorehouse, they take ALL the girls”. Translation: still not a great place to be.

Oil and other natural resources could be a decent play for a small chunk of your money. They’re a bit expensive now, but will likely move higher in the long run, especially if the dollar really tanks. All the recent reporting about how higher oil prices are just a scam by the oil companies and speculators misses the big picture, which is about political risk in oil producing countries and currency risk the world over. I like DBE (on the NYSE), which invests in a variety of energy markets. There are lots of other ETF (Exchange Traded Fund) natural resource plays out there, too.

Gold and silver might be the best way to protect yourself from what’s coming, although quite risky (in the short run) at these high prices – especially silver. There's been a literal panic into silver in the last couple of weeks, all around the world. But in the long-run, they’re still likely to go much higher as people scramble for alternatives to a crumbling dollar. Look for mostly lower prices for a few months, before things heat up again. Buy bullion gold coins and silver rounds, and/or invest via the gold and silver ETFs of GLD and SLV, when prices dip.

The most interesting option at this point may be the Swiss franc. Unlike the U.S. dollar and the equally shaky euro, the franc benefits from the Swiss penchant for living within their means and protecting the value of their currency. And really, where else are people going to put their money? In the BRIC’s rupees, rubles, reals, or yuan? Maybe. In the Japanese yen? Perhaps, but the franc is the world’s premiere stable currency, and its outlook is bright. The Australian dollar is another possibility; you can buy FXA to participate in that currency, or FXF to be in the Franc. Unlike gold and silver, they’re more reasonably priced now and not as volatile (don’t move up and down so wildly).

The Chinese have a saying: “May you live in interesting times.” So perhaps we should consider ourselves blessed. I may be wrong; the politicians and the public may have a change of heart before it’s too late and my fears may all be for naught. But the smart money’s not betting on that horse, and if they’re right, we’re in for something much more than just a little hiccup. Make sure your financial house is in order, since the country’s isn’t. Limit your exposure to a discredited U.S. dollar as much and as soon as you comfortably can.

A Really Big Question, part 4

2011-03-27T13:10:00.000-07:00

Last time we looked at how Americans' unholy obsession with more and bigger everything explains why the nation can no longer provide many basics that it could 40 or 50 years ago. We see this in the $40,000-$60,000 luxury SUVs, Mercedes, Lexus and other high end cars on the road today. Those are no longer the exception, toys of the rich; instead, they're so commonplace as to not even warrant the special attention that such a car would have gotten back in the day. Compare this to 1965, when the average new car cost $2650. Then there are our homes, averaging $355,000 in San Diego today, vs. $20,500 in 1965. Of course, cars, houses, and most everything else have better features now than they did in 1965, but still - people paying 18 times as much for cars and 17 times as much for homes, when overall prices are only 7 times higher today than back then? Hmmm......

I'm going to let others calculate how much we've got tied up in housing, cars, electronics, etc. today, vs. back in the 1960s. But can we just agree that it's probably tens of trillions of dollars, many more than in 1965 even after adjusting for inflation? Still, I wonder how much of our money has ended up in the pockets of Wall Street pirates, corporate fat cats and foreign billionaires, thus hobbling the nation's capacity to function smoothly. I mean, it's one thing if we stupidly but knowingly sacrificed the nation's future for the benefit of our own conspicuous consumption, yet it's quite another to have been duped out of billions or trillions by these unsavory characters.

I guess that's the question: Is it many billions, or is it trillions? Because if the big bankers ripped us off for tens of billions over the years, corporations lined their pockets and those of their stockholders with tens of billions more, and we've sent tens of billions in wealth abroad without it coming back to us in some form or another, then that's a bummer, but hardly explains the mess we're in. On the other hand, if the big banks and brokerage firms have pocketed many hundreds of billions or even trillions in ill-gotten gains, while corporations and foreigners have matched their thievery or - especially in the case of foreigners - perhaps rather fairly-gotten gains, well - that's a pretty big deal, isn't it?

I'm not sure which it is. Nor am I sure I want to do all the research to figure it out. But I'd like to have some idea, and think Americans (or at least readers of this blog) should know which is more likely. No sense blaming corporate America and avaricious foreigners for all for our ills if it's not really their fault!

Where to start? Well, knowing how much Wall Street firms and the big banks made over, say, the last 20 years would be a good starting point. Next, we could take a look at total pay (including bonuses & stock options) for top corporate executives over the past 20 years, using perhaps the 30 companies in the Dow Jones Industrial Average. Measuring how much foreigners have "ripped us off" over that same time period would be, I think, just too difficult. There are so many variables there, not the least of which is the incredible growth in their own country's markets, the degree to which they became wealthy "fair and square", and other considerations. So, now that I think of it, I'm just going to focus on home-grown theft by "Wall Street" and "Corporate America".

You don't know it, but I just took some days off to look for the kind of information mentioned in the previous paragraph. Didn't have a lot of luck. Bits and pieces, such as the nation's brokerage firms made $61 billion in 2009, a record year, but lost $23 billion in 2008. Well, I'm going to use those bits and pieces, some knowledge of the business world and economics, and some common sense to come up with some "guesstimates". These are not hard, reliable figures, but they're a start; an honest effort to gauge where some of our money has gone.

Going back to the early '90s, it seems that Wall Street lost money only a few times, but otherwise made something like $10 billion-20 billion a year most of the time, with plus $69 B and minus $23 B being the outliers. Let's take the middle of the range, and say that they averaged $15 billion a year in profits, or $300 billion total over the last twenty years. But what about all the bonuses they paid out? In most cases, those would have come out before figuring profits, so there's another big chunk of money that Wall Street walked away with. Last year those amounted to nearly $21 billion, the 5th largest amount ever. Let's go out on a limb somewhat and guess that maybe those have averaged about $15 billion a year also, or another $300 billion over twenty years.

That's perhaps $600 billion that Wall Street's taken home since 1990. Certainly much of that found its way into the pockets of millions of Americans, either in the form of dividends or the trickle-down effects of the wealthy spending their money. And a big chunk went for taxes; despite the conventional wisdom that the rich avoid paying taxes, the fact is that something like 70% of all income taxes collected come from the richest 10% of Americans. Let's cut to the chase: I'm guessing that Wall Street fat cats have pocketed, held onto, squirreled away perhaps $200-300 billion over the last twenty years; that's $200-300 billion moved into Swiss bank accounts, $20 million houses, $10 million works of art, etc.

That's a lot of do-re-mi, as they say. But not enough to explain why we're $15 trillion in debt, can't afford to fix our roads, and so forth. There's also the corporate profits, and increase in stockholder wealth, though. Again, it's really hard to get a handle on those numbers, at least without going out and doing the serious research that - well, let's be honest - I don't want to bother with right now.

What I do know is that the 5000 largest corporations were worth about $4.5 trillion in 1990, and are worth nearly $17 trillion today. That change would about account for the increase in our national debt over the same time period, but such a comparison would be totally bogus. First, because those corporations grew by creating tens of trillions of dollars worth of goods and services that went to us Americans, so it's hardly saying that they "stole" their greater value. Second, because nowadays more than half of all Americans own stock, either directly, indirectly, or both. So much of that increased value has, again, gone into the pockets of tens of millions of Americans, not just a relatively few fat-cats.

Another thing to consider is how much profits have been earned by U.S. corporations. This is different from how much the companies are worth (the subject of the previous paragraph); a big chunk of the profits are paid out every year, and thus become income for stockholders. Twenty years ago, U.S. corporations had total profits of about $400 billion a year; by the end of the 1990s, profits were over $800 billion a year. In the last five years, however, total profits have been in the $1 trillion - $1.6 trillion range a year. That implies that total corporate profits these days are about three times as high (or more) as they were twenty years ago and, by extension, we might suppose that an "extra" $10 trillion or more has gone to corporate America in the last 20 years.

Now, not all that money was paid out in the form of dividends; only about 50% of profits get paid out that way. But still - an "extra" $5 trillion or so going into the pockets of U.S. stockholders in the last 20 years? That's a lot! Still, let's remember that while a big chunk of that ends up in the accounts of the $20 million mansion crowd, quite a bit goes to many millions of more ordinary Americans.

Let's try to connect the dots now. First of all, the data is really scattered and it would be unwise to make definite conclusions out of what I've presented here. Nevertheless, it DOES seem a safe bet that many hundreds of billions, probably trillions, of dollars have found their way into the hands of corporate big-wigs, wealthy investors, and other Wall Street types in the last twenty years or so. Probably much of that was earned fair and square, but it's just as likely that much of it was excessive, unwarranted, and unfair. CEOs making 30 or 40 times what their average employee makes? OK - probably deserved. CEOs making 500 times the typical employee's salary? Not so much. Guys like Bill Gates, who revolutionized our world and created incalculable real value for all of us, becoming a multi-billionaire? Well done, Bill! The 22-year old kid becoming a multi-billionaire for creating an on-line chat room, or big bankers earning $300 million bonuses for figuring out new ways to game bloated, dysfunctional mortgage markets? I don't think so.

So is the nation a poorer place, unable to pay for good schools, roads, and avoid government shutdowns because of Wall Street's greed? Probably so, at least in part. Let's remember, however, that there's plenty of blame to go around - as discussed in earlier parts of this blog. Wall Street avarice and the full-contact form of American capitalism may be the bad guys, but they are hardly the only ones.

A Really Big Question, part 3

2011-03-18T20:14:00.000-07:00

The U.S. today is 3 to 4 times richer than it was 50 years ago, yet we can't afford many of the basics that we took for granted back then. Why is that? Where'd the money go? That's where we left off last time, after concluding that the nation's massive accumulation of debt (a.k.a - living beyond our means) is probably a big part of the answer. Related to that is the sad story of consumerism gone mad in the U.S.

During the 1950s and 1960s, the nation grew ever more prosperous, while memories of hard times (the Great Depression and WWII) faded from people's minds. The last really tough economic times were the late-1970s and early-1980s, when the twin devils of high inflation and high unemployment spiraled the nation into a pessimistic funk. Ronald Reagan, supply-side policies, the collapse of European communism, advances in technology and communication, and improved monetary policies out of the Federal Reserve (rank these according to your political views) led the country into the fabled "Goldilocks economy" of the mid-1980s to late-2000s. Notwithstanding the dot-com bubble collapse of 1999 and 9/11/2001, the country enjoyed an unprecedented period of low unemployment, low inflation, and high growth - a near miracle that made it the envy of the world.

In this glorious economy Americans, aided by the increasingly finely tuned instincts of the advertising industry, responded by demanding more of .... EVERYTHING. Whereas the typical 1950s family of six managed just fine with an average house of 1100 square feet and a modest four-door sedan, average new home size grew to over 1500 square feet in the late-1980s, and a ridiculous 2200 square feet by 2005 - while average family size dropped to less than four! Meanwhile, the basic sedan was replaced by the 1990's larger, signature vehicle - the Ford Explorer. But by the turn of the century, the Explorer didn't convey the idea of conspicuous consumption quite enough, and Americans traded up to even larger Expeditions, Excursions, Escalantes, Tahoes, etc. Yup - $40,000 four-wheel drive vehicles that seat nine, for families of three, who lived and stayed in the city. WTF?

It was the same across the board. Why buy $25 Levis when you could buy $100 designer jeans? Why eat at a modest local diner once a month when you could dine finely a couple of times a week? Why watch a the 26" inch TV that was plenty big in 1980, when you could get a 60" flat-screen for about five times as much? We never felt the need to be connected previously to everyone we know, minute by minute, but now how many people can get by without their cell phones, the minute-by-minute texts and tweets, the e-mails - all for a low, low $150 a month?

Americans spent, then spent more, then borrowed to spend even more. Meanwhile, the thought of saving money receded into the distant memories of "back in the day...." In the 1960s, the average American saved about 8% of what they made. In 1975, the rate was as high as 14.6%. But then it started dropping, as we all decided that "wants" were actually "needs". By the early 2000s, the nation's average savings rate was essentially zero; for every person who saved, there was another person with no savings, but debt instead. As a country, we stopped saving and just spent, spent, spent.

We became stupid. We equated happiness, success, and personal worth with - vast amounts of stuff. Expensive, unnecessary, superfluous stuff. So the money, hundreds of billions - trillions, actually - of American wealth went into the pockets of the advertisers, manufacturers and merchants that told us what we needed, and then happily gave it to us. Average Joe and Jane Smith became real estate wizards who made millions on the idiocy of millions of other Smiths trying to keep up with one another and the Joneses. Techie geniuses came up with devices so appealing that we simply couldn't live without them. The world (China!) opened up to us, offering their unlimited quantities of every-damn-thing to us at ridiculously low prices. Americans bought and bought and bought, their money lining the pockets of realtors, developers, entrepreneurs, and foreign businessmen at incredible rates.

The world's multi-millionaires became multi-billionaires. Broke-ass Chinese, all riding bikes 25 years ago, have come to have the second largest number of billionaires (64 of 'em) of any country in the world today; additionally, almost half a million Chinese are millionaires. CEOs in the U.S. regularly make millions of dollars a year, plus bonuses. The stock market, as measured by the Dow Jones Industrial Average was around 1000 in 1980; it's twelve times that today.

All the money we've made in the last 40 or 50 years, apart from being financed from borrowing, from debt, has gone into all the stuff we own and the pockets of the people who made and sold us all that crap. We've got bigger houses and cars and fancier and more of everything than we need, and that's where the money went. From there it lined the pockets of the bankers, the entrepreneurs, the stock owners, the real estate scammers, the foreigners. Instead of into better schools, roads, parks, health care for virtually everyone, a cheap college education, government offices open 5 days a week, every week.

Don't blame them. They're doing what they do: they create, they produce, they promote; they capitalize on opportunities. It's not their fault they've got our money. But that's where a lot of it went.

A Really Big Question, cont.

2011-03-08T08:33:00.000-08:00

Last time I raised the big question of: even though the U.S. is much richer now than it was 40 or 50 years ago, why is it that we're missing so many of the basics that were part of our lives back then? Where did all the money go?

The nation's GDP, or Gross Domestic Product, is about $14 trillion today. GDP, which is the most widely used measure of a country's wealth, tells us how many goods and services are produced in a year. If we want to know how wealthy the average citizen is, however, we're better off looking at GDP per capita, or the amount of goods and services produced in a year, per person. Our GDP per capita is about $45,000 these days, which is one of the highest figures in the world.

By contrast, let's look at the year 1965, which in many ways was a high point for this country. The Vietnam war was not really a problem yet, inflation and unemployment were virtually non-existent, the U.S. was the unquestioned manufacturing giant of the world, and civil and generational upheavals were mostly a couple of years down the road still. All of these things would change quickly, but in 1965, the nation's real GDP (GDP that is adjusted for inflation) was about $3.5 trillion, or about a fourth of what it is today. GDP per capita, also adjusted for inflation, was about $18,000, or a bit more than a third of what it is today. So it's pretty fair to say that as a country, the U.S. is about 3 to 4 times richer today than it was in 1965.

Getting back to the original issue: why is it that today's much wealthier nation - 3 to 4 times wealthier than in 1965 - cannot provide many of the basic services that were a "given" back then? Why have police, firefighters, teachers, librarians, sanitation workers and other key public servants' jobs been eliminated, with many more cuts likely? Why are key government offices closed several days a month, and school years being cut, just when we need to focus more on education, not less? Why are our bridges and roads falling apart after decades of neglect? Why is medical care an unaffordable luxury for so many Americans?

As previously mentioned, one part of the answer is probably the nation's debt. The federal government owes about $15 trillion, while state and local governments, businesses, and individuals owe about another $60 trillion. Even after adjusting for inflation, that's a lot of money! The federal debt in 1965 was $261 billion, so today's federal debt is about 60 times greater than it was in 1965; neither inflation nor GDP have gone up that much since 1965! According to the federal Bureau of Labor Statistics, overall prices have increased about 600% since 1965, so the federal debt has grown almost ten times faster than overall prices. I'm guessing that state and local debts grew then also (for schools, for roads, etc), while business debt (for new factories, research and development, etc.) and individual debt (for homes, cars, college, etc) grew quite a bit as well since 1965.

Now debt's not always a bad thing. If you or I or a business or the government borrows money to make a sensible investment, then debt can be good. So if I borrow to pay for a solid college education, a business borrows to build a new factory, or the government borrows to build a better transportation system for the country, then those things are most likely going to pay me, the business, and the country back several times over in the long run. Similarly, if the government borrows to fight a necessary war, well - that's a necessity, isn't it? That's good debt.

On the other hand, though, if I borrow so I can take a high-end European vacation, the business borrows to pay its top executives un-Godly large bonuses, and the government borrows to pay for wasteful pork or an expensive war that perhaps was unnecessary, then all of us are going to end up with nothing to show for it down the road except a reduction in our net worth. That's bad debt.

I think the reality is that a lot of the borrowing that we saw in the 1980s was associated with a number of supply-side policies, and that it was "good debt". Starting in 1981, marginal tax rates for businesses and individuals were cut, giving them more incentive to work harder and invest. Regulations on businesses were cut back, making it easier and more profitable for them to operate and expand. More savings was encouraged by opening up IRAs and 401(k) plans to millions of Americans, helping to reduce the cost for businesses to borrow. The end result of all this was that more money went into research and development, into opening new businesses and expanding existing ones. All this investment (along with major developments in technology, communication, and trade) then set the stage for the explosive growth of the late-1980s and all of the 1990s.

To be sure, a lot of the borrowing of the 1980s, and especially the 1990s, went for silly, materialistic stuff as Americans became more and more interested in "having it all." I'm just guessing here, but my intuition is that a lot of borrowed money went into productive businesses, research, infrastructure, etc. in the mid-1980s, but the percentage going there gradually dropped as the '80s became the 90s, and then the 21st century. My guess is that more and more borrowed money went into replacing smaller cars and houses with bigger cars and houses, eating at home with eating out, sensible clothes with designer label stuff, and so forth. And more money on an endless variety of government programs and bureaucracies.

To whatever degree that is true, then the nation switched from focusing on a better future, to having a better now. This would be a reversal of countless generations of thought, where it was always: "I want my children to have a better life than I did." And to whatever degree this is true, then, the answer to "where did all the money go?" is that it went to the banks, the wealthy, and the foreigners who lent us the money. By borrowing, we basically got lots of stuff, and they got lots of IOUs that are now starting to strangle the country. Next time, we're going to take a closer look at this huge paradigm shift, this gonzo consumerism that came to characterize the United States in the 1990s and continues even today.

A Really Big Question

2011-03-04T17:05:00.001-08:00

TIME magazine's cover this week is titled: Yes, America is in Decline. I guess their premise is pretty obvious, and it's one that would come as no surprise to readers of this blog. Take the essay posted here last week, for example. But here's the Really Big Question, and I've been wondering about it for quite a little while: "How come we're SO broke?"

What I mean is, the U.S. in the 1950s and 1960s was MUCH less wealthy, even after adjusting for inflation. And yet, where I grew up, a lower-middle class town ..... Nearby state and national parks were fully staffed and fully serviced; open all the time. Every school had a full-time librarian, a full-time nurse, and at least a part-time music teacher that taught virtually every kid to play an instrument. New roads and bridges were constantly being created, and existing ones were kept in decent condition. All government offices were open five days a week. Almost every kid was in scouts or played Little League, or both. School class sizes were modest, school supplies and books were never in short supply. College was located just next door to free. Cities ran smoothly, and nobody talked about draconian budget cuts. Nobody even thought about health insurance; everybody could afford to go to the doctor.

Nowadays, when even after our recession and whatnot the U.S. is still much wealthier than it was 50 years ago, many parks are shut down and/or have limited services. School librarians, nurses, and music teachers are endangered species. Roads and bridges are old, worn out, and not being fixed. State offices are closed several week days a year. Scouts and Little League are too expensive for a lot of people. Schools are laying off teachers, class sizes are growing, teachers often buy their own supplies or do without. Even state colleges are starting to be beyond many students' ability to pay. Cities are going bankrupt or slashing staff and services. Health care is almost a luxury. Why is that???

I can think of a number of possible answers, and will explore these here over the next few weeks. Most likely culprits include: the huge government debts built up over the last 40 years; Wall Street and corporate greeders that have raped the country for countless billions; the insane, mindless consumerism of the past 30 years; the wars of the last 40 years; and...... perhaps the reality that things really AREN'T worse than 50 years ago, the natural tendency to remember the past more fondly than it really was.

So stay tuned and check back once in awhile.

The Party's Over, and People Don't Get It

2011-02-24T17:01:00.001-08:00

That's what I wrote on the board in one of my classes the other day, as we were watching the story about Wisconsin's budget problems. Like other states, voters there are reluctant to raise taxes, and this leaves the state with no other alternative than to cut spending, including areas where they'd really rather not. One of the places Wisconsin would prefer not to cut is in education; another is from the pensions of public employees who've worked so hard to get a decent income in their retirement years. To do so would just be so wrong! But as I often ask: What's the alternative?

Not much, it seems. Mostly we just hear that Wisconsin can’t do that, without hearing what they CAN do. I don't know if reducing the power of unions, and reducing public employee salaries and pensions are the only way or even a good way to deal with these daunting state deficits, but I do know this: The financial problems that the states, and the federal government, face are .... absolutely disastrous. Probably worse than in the Great Depression; perhaps the worst this country has ever seen. And people just don't get that yet. You explain how THERE'S NO MONEY, and drastic cuts HAVE to be made; they listen, shake their heads in agreement and then go "yeah, but what's this got to do with me? where's my raise? why can't I retire at 55?"

Most Americans hear about the $15 trillion dollar federal deficit, California's $26 billion deficit, and the like, and just sort of say "Well so? Fix it! Cut government waste, tax millionaires more, you know - just fix it!" Or else they figure the "problem" is just a phony one, or will just sort of go away by itself.

But it's not even remotely that simple, and there are no fixes that won't involve serious amounts of pain for almost all Americans, for many years to come. The bottom line is that almost all of us are going to have to live with smaller paychecks and smaller pensions, work longer, and get less in the way of government services and support. No use whining about it or marching around with tired old 60s-era “hey, hey, ho, ho, government cuts have got to go” chants, because that’s just the way it’s going to be. Here are a couple of reasons why this is inevitable.

First is politicians’ decision to kick the can down the road for 40 years or so. I remember back in the mid-1970s when I started in the investments business; conservative analysts were alarmed by the federal government spending more than it took in, year after year. The nation's debt was rising at a then-alarming rate, while the value of the U.S. dollar was rapidly eroding. We have to stop this now, they said, or else our children and their children will pay a heavy price down the road! Congresses and Presidents came and went, but nothing fundamentally changed. To fix the problem required raising taxes and/or cutting government spending - two equally unacceptable policies. Anyone who pushed either option would likely be voted out of office by angry voters: "You raised my taxes!" "You cut spending on my favorite program!"

So Congress borrowed more money instead, kicking the can down the road, letting the next Congress deal with the problem. Disturbing annual deficits in the tens of billions of dollars in the 1970s became shocking deficits of hundreds of billions in the 1980s and 1990s (except for a few surplus years in the late-1990s), and then insanely high deficits that eventually exceeded $1 trillion a year by the late-2000s. Each time, as Congress refused to make the tough decisions (cut spending and/or raise taxes), everybody said: "If we don't fix this now, it's today's children who will pay the price." Nobody pretended to not understand that their inaction would put the burden of their decisions on the back of future generations; the presumption was always "well, we didn't fix it this year, but next year we will!"

But it was a cruel hoax, a deceit. Most politicians knew in their heart of hearts that they couldn't solve the problem, that they didn't have the nerve to take the tough actions needed to do so. And besides, by the time the problem got totally out of control - they'd be long gone. Someone else's problem!

Well, the shell game is winding down and the future is now. The debt is so big, the economy so unable to deal with it using conventional means, that the party, the game of musical chairs, is about over. Today's Americans, especially the young ones, are getting presented with the bill for all the living high off the hog of the past 40 years. Not right away. Not all at once. Not always in obvious ways. But it's clear that it's happening; it has to happen. And most people don't get it.

My wife and I were in Mission Valley the other day, and couldn't believe the parking lots. They were all full, with people waiting for someone to leave so they could park. In this bad economy. When Internet shopping is taking more and more business away from physical stores. Still - stores were packed. People were buying stuff right and left; lots of it overpriced, frivolous stuff. Paying $11.50 to watch a movie, and then $13 for a large Coke and popcorn.

Many of these same people will quickly tell you how the economy sucks right now: prices are up, jobs are hard to find, and government is cutting its services. But they've still got their cells with unlimited texting, their $30,000 SUVs that get crappy mileage, still eat out twice a week, still consider shopping at the mall a sensible hobby. These people don’t get it.

Meanwhile, there is the other America; the 10% or 20% or 30% of Americans whose lifestyles have already taken a huge hit. They lost their jobs, lost their homes, lost their meager savings, don’t have health coverage, and after a couple of years see no light at the end of the tunnel. Or they’ve got a job, a home, lousy health insurance, but no pension to look forward to and are just barely scraping by. They don’t understand all this talk of the economy improving, don’t understand how the stock market has almost doubled in the last two years, don’t understand how so many others have money to just throw away at the malls.

So here’s the second thing. Many of those people are part of the old economy. Despite all the calls for Buy American, the old ways are gone. If you used to work at a lumber mill or a manufacturing plant; if you used to earn a good living with just a high school education and a skill set that isn’t really needed anymore; if you had a non-essential job and somebody found a way to get by without you, then you’re a casualty of the new economy. Globalization changed things, and there’s no putting the genie back in the bottle.

The changes in the American workplace were inevitable and, in a way, we should be happy about how things are working out. Because if you think about it, a big reason that Americans were able to live so high on the hog, even after we started getting a little lazy and feeling entitled, was because we were still one of the Big Dogs, benefiting from old colonial and imperialist realities.

We had lots of military and political muscle, long-standing commercial arrangements the world over; bargaining advantages of many types that gave us a huge edge over so many other countries. We had the U.S. dollar, trusted basis of the entire world’s financial system. We had good education, great inventions, good roads and hospitals and phone systems. Free markets and strong laws to protect entrepreneurs and foster civic strength. Meanwhile, the majority of people elsewhere lived in the third world, in desperate poverty, with little or no education, no military or political muscle – nothing. Or they lived in communist countries, essentially dictatorships where their futures were seldom promising.

So it was relatively easy for us to live off the fat of the land (the world) during the 60s, 70s, and 80s. But that really started changing about 20 or 25 years ago, with the fall of communism, with China’s adoption of free market policies, and with advancements in technology, communication, and transportation. Now, everyone can see what life is like in rich western countries – and they want that. Now, everyone has access to technology and information and can use them to level playing field after playing field. Now everyone has an incentive to work hard, to create, to build wealth. The Chinese work harder and much, much cheaper than Americans, so they make everything. Meanwhile, the Indians work harder and cheaper than Americans, so they’re starting to do everything (think: call centers, surgery centers, accounting services). Meanwhile, they, and other parts of the former third world, are jumping ahead of us in education, in modern infrastructure, in the things that will allow them to inevitably catch up and perhaps even surpass us.

We should be happy for them, shouldn’t we? Shouldn’t we feel bad that for decades we had the great lifestyles, at least in part because of policies that exploited poorer countries? We won the Cold War; we brought down communism! Shouldn’t we be proud that – with our help in many cases – many countries are now following our lead, and catching up? Shouldn’t we be glad that they’re now starting to have decent lifestyles, even if it means that we’re living a little less high on the hog? Hmmm…. I don’t think most Americans are quite that gracious about it.

But shouldn’t they be? I mean, the poorest Americans still aren’t starving to death. Most of them still get a decent education, have a roof over their heads, have personal freedom and a chance to make something of themselves, are free from having to worry about ethnic cleansing and bloody revolutions. So what if our GDP per capita (basically – average income per person, per year) falls from $45,000 to $35,000? We’re still well off; still in better shape than 95% of the world’s population. Can we really begrudge other people in the world the chance at bettering themselves? Do we really think that all those high paying jobs are our God-given right, for perpetuity - that nobody else should be able to take them from us?

I think the answer is yes. Americans had it all, for so long that they think that having it all is their natural right. We benefited from our world dominance, and from the buy now/pay later philosophy of our government for so long. It’s a lot harder to give up the good life when that’s all you’ve known. Americans, proud and hard-working for so long, now feel, more than anything else, entitled. But the party’s over. And that sense of entitlement is going to make it harder for people to accept what is essentially inevitable.

Amendments Two and Fourteen - similarities?

2011-01-10T19:57:00.000-08:00

This originally appeared a few months ago. Now, with the recent shootings in Arizona and Tea Partiers again bringing up changing the 14th Amendment, this is a pretty relevant topic.

Anti-illegal immigrant groups have been talking about changing the Fourteenth Amendment to the U.S. Constitution, so that when people who are in the country illegally have children, those children are not U.S. citizens. As with anything else related to illegal immigrants - "undocumented residents", if you're more sympathetic to their plight - this is a very controversial proposal. It's also unlikely to get very far any time soon, which even its supporters admit. Still, I think it makes a lot of sense. Further, it reminds me of the situation with another controversial Amendment: the Second, which protects (or not, depending on your beliefs) the right to individual gun ownership. Here's what I mean.

Everyone agrees that illegal (undocumented) immigrants are a big problem. The disagreement mostly centers around whether we need to make it easier for people to enter and stay in the country - essentially an immigrant-friendly view, or that we need to make it harder for them to illegally enter and then stay in the country - the anti-illegal immigrant view. Please note that nobody claims to be against immigrants coming here legally, although Americans have long tended to not welcome foreigners of any status, and that tendency doesn't seem to have disappeared yet.

Among the problems that the anti-illegal immigrants ("antis" from now on) point to is how many illegals have children here who, under our Constitution, are automatically U.S. citizens. This creates all kinds of problems, not the least of which is: if mom and dad are deported, what happens to their U.S. citizen kids? The scale of the problem is huge, as many pregnant women apparently sneak into the country specifically so that their child is born here, gaining that prized U.S. citizen status. The Pew Hispanic Center recently reported that one in every twelve children born in this country was born to a mother who is in the country illegally, and other groups, including the antis, agree that number is about right.

But you can't change the 14th Amendment, top lawmakers say. Citizenship for those born in the U.S. is among the most sacred of our constitutional rights, and if we start fiddling with that right, which other rights will be next? Those proposing a change to the Amendment, they say, are merely playing politics, trying to win the antis' votes.

I'm not convinced.

When contemplating the Constitution and its Amendments, a crucial element is always: what did its authors have in mind? The related, implied consideration is: given what they had in mind, would they have written it the same way today as back then? The Second Amendment illustrates that point. Whether or not the Founding Fathers meant it to protect individual gun rights or merely the right of militias to own guns, as the two sides argue endlessly these days, the fact is that today "the right to bear arms" is a much more complicated proposition than it was 220 years ago.

As a strong supporter of the right to gun ownership by individuals, I nevertheless agree with the need for reasonable limitations on that right. Machine guns, grenade launchers, shoulder mounted surface-to-air missiles - could the Fathers ever have imagined such heinous weapons? If so, would they have felt that everyone - every one of us - should have unlimited access to those? Even convicted violent criminals? Avowed terrorists? Mentally unstable postal workers? What would the Founding Fathers think about people going into a McDonald's or a school or their workplace and shooting up innocent people with automatic weapons? What would they think about what happened in Oklahoma City in 1995 or on 9/11 in 2001? Could they have even imagined all the types of "arms" available today, and the horrific ways that twisted people use them?

It is reasonable, IMO, to think that the Fathers would have written the Second Amendment differently if they were to write it today. Or at least, since they tended to keep the Amendments short and simple, agree that the courts could clarify that certain limitations do not violate the Amendment's intent. Limitations on certain types of weapons that Joe Everyman can own, restrictions on certain types of people having access to guns - it seems to me that they would have wanted that in today's world. I don't think such limitations go against what they had in mind, even while I recognize my more conservative friends' fear that once you limit certain types of gun ownership, you're on a slippery slope that can lead to a near total gun ownership ban. They've got a point, but I still think the responsible and rational course of action, consistent with what the Founding Fathers had in mind, would be to have some limits on the right to bear arms. We do, after all, need laws that deal with the realities of today, not of those 220 years ago.

Let's consider the Fourteenth Amendment from a similar perspective. Following the Civil War, the states ratified the proposition that "All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States." This, of course, was primarily about making former black slaves, as well as Native Americans (Indians), U.S. citizens. There was no such thing as an "illegal-immigrant" in the U.S. at that time. In 1868, when the Amendment was added to the Constitution, huge swaths of the country were still unpopulated and immigrants were actively encouraged to come to America with few if any restrictions. In fact, the first immigration law in the U.S. wasn't even passed until 1875. Obviously, the implications of granting citizenship to the children of people who had illegally entered the country was the farthest thing from anyone's mind back in 1868.

Fast forward to modern times and ask yourself: would the Amendment's authors, and the state legislators that ratified it, have wanted it to be abused the way that it is today? If those legislators could see the situation today, with all the problems of illegal immigration and with people purposely breaking the laws of the U.S. in order to have their child born here, do you think they would want that child to be rewarded with U.S. citizenship? Obviously, I don't.

I still have mixed feelings about what to do with illegal immigrants overall, as my earlier writings on the topic indicate. But on this one small issue, it seems like there is an obvious and simple answer. Why should we not adjust the Amendment to reflect our modern realities? As with the right to bear arms, our government has an obligation to operate under laws that make sense given today's realities, not in the world as it was 150 years ago. We do, after all, pride ourselves on being a nation of laws; requiring that someone be here in line with our laws in order to get citizenship - how is that a problem? Perhaps something as simple as adding the word "legally" in front of the phrase "born" in the Amendment, although it would probably have to be more like "born to a mother who was legally in the country at the time" - or whatever.

How, exactly, would this modification detract from the Constitution, the rights of legitimate American citizens, etc? It's a huge stretch, IMO, to say that such a minor, simple, and logical change sets a precedent for weakening our Constitution and our constitutional rights. Similarly, the answer to those who say: well, if we change this Amendment, what happens to those who were born here under illegal circumstances before the change? That's a simple one: they are grandfathered (exempt from the change), just as people are usually grandfathered when any new law changes the rules.

As this site's title reminds us, things usually aren't as simple as we think they are. So maybe I'm missing something here. One problem may be that we really don't want to start tinkering with the wording of Amendments; changing Amendments is a serious and difficult process. Well fine; just as with the Second Amendment, we could simply allow the courts to rule that not granting citizenship to children of parents of illegal status doesn't violate the intent of the Amendment. Because, if it's OK to tweak the 2nd Amendment to fit the times, then why doesn't the same apply to the 14th? What's good for the Goose.... as they say.

Less Spending on the Elderly?

2010-12-26T15:32:00.000-08:00

Like most people, I really love my mom and dad. Every morning, as part of my daily prayers, I give thanks for the great parents that they were. Mom stayed at home to take care of us, was deeply involved in our Boy Scout and Girl Scout activities, and was PTA president, for example. Dad was a gentle giant, strong but quiet. The outdoors and baseball - those were his two great interests, and he did his best to teach me about them, and much more. From both mom and dad, we learned values: honesty, hard work, thriftiness, respect, the importance of education. We didn't have much money, but we wanted for nothing that really mattered. Mom and dad did everything a person could have expected from good parents.

Dad passed away a few years ago, after an ugly battle with lung and brain cancer that - in the end - had him in diapers and constantly saying cruel, hurtful things. He was in great pain, mentally and physically. That wasn't the real him, and not the way we wanted to remember him. Mom's 85 now, and not doing so well. Dad really spoiled her, always took care of everything, always looking out for her. With dad gone, mom's gradually gotten worse. Her physical problems have increased, and now she's having a lot of mental issues. She's become rather childlike in some ways, more selfish, but also more paranoid, stingy, and very, very forgetful. It's getting more and more difficult to care for her, even as she refuses to go into a retirement home or get full-time help in her own home.

It's not a pretty picture in other words, and my sister and I wonder how we're going to deal with it all if she lives another 2 or 3 or 5 or 10 years. Surely it won't get much easier.... The other part of this, though, is the realization that we're heading in that direction ourselves. Looking at what happened to dad and is happening to mom, we can't help but wonder: "is that us in a few more years?". Yikes! We all want to go out like my grampa did: 86 years old, sitting on a bench waiting for the bus to take him to my cousin's house for some fresh pies she just made. Apparently he had an aneurysm or something, and just plopped over dead. Until then, he'd been living on his own, healthy and with his wits about him. But based on mom and dad's experiences, we know that we can't count on such a pleasant passing.

So it's not that I'm unaware of the problems that old people have. Nor am I someone who doesn't value the elderly and their contributions to society. And finally, at age 58, I'm on the cusp of elder-hood myself, and obviously have a personal interest in what happens to senior citizens. But I think we pay way too much money on their (and soon - my) health care, and that's a huge problem for our country. It's a problem because the U.S. is in terrible financial shape and it's getting worse, a big portion of the problem is tied to spending on the elderly, and if we don't do something drastic - and soon - we may well end up with something that makes the Great Recession of 2008-2010 look like the good old days. Mostly, it'll be the young who suffer the most from all this.

Our federal government's deficit will approach $15 trillion in the next year or so, a number so huge that we can scarcely comprehend it. Interest payments on that amount, which is certain to rise even more in future years, is around $600 billion per year. That's $600 billion that can't be spent on education, defense, better roads, health coverage, etc. - each year. Yet even $15 trillion doesn't tell the whole story, as state and local governments, corporations, and individuals are in debt by another $45 trillion or so (http://grandfather-economic-report.com/debt-nat.htm). Total annual cost for all U.S. debt? Something like $3 trillion in interest, per year. Problem is: those numbers are headed higher and are reaching the point where the U.S. system as we know it may no longer be viable. You think unemployment, outsourcing, outdated infrastructure, home ownership, and the cost of a college education are bad now? Stick around.

The elderly's role in this, which by the way is NOT the same thing as saying their blame for this, is based on a number of factors that all result in them getting a larger and larger share of the national "pie". According to the Cato Institute, spending on the elderly was about 24% of all federal spending in 1980. Twenty years later, it was 35%, and is estimated to be 43% in 2010. As Cato puts it "The elderly will elbow aside all other citizens as they seize the bulk of the federal budget" (http://www.heartland.org/custom/semod_policybot/pdf/13279.pdf) Just to be clear what this means, they also said that "High consumption by the elderly (will be) funded by the young". Now the Cato Institute is a libertarian think tank with its own bias and agenda, but everybody else seems to say much the same thing on this issue.

Most of this spending on the elderly is on health care and/or is a result of improved health care over the decades. Because of better living conditions and greatly improved (and very expensive) health care, people are living much longer now. Because of that, they're surviving long enough to receive many more years of Social Security payments, and have many more years to benefit from Medicare and Medicaid than those programs were designed to support. Meanwhile, overall health costs have soared astronomically, so those additional years of health care for elders get increasingly more expensive. Cutting back on elderly health care spending won't solve the nation's debt problems, but along with limiting other old age benefits, it's a good and absolutely necessary start.

The earlier reference to bigger piece of the pie is a way to refer to the basic truism of economics: there's not enough for everybody to have everything they want, so society needs to make choices. It would be an over-simplification to say that we can spend either on the young, or on the elderly. But sadly, that's kind of what it boils down to. I say the elderly have had their turn, and we ought to focus less on extending their lives even more, and spend our money more on other things. And remember - I say this as a loving son of an elderly woman, and someone who will be elderly himself in a few years.

* * * * * * * * * *

The other part of this is there's a ton of money being spent on keeping sick old people alive longer than Nature intended or, in many cases, they themselves want. As a result, we get people who are 80 or 90 years old who've had great lives, but are just falling apart physically; it's their time to go. But we don't let go and instead insist on trying every medication, procedure, or operation to keep them going another month, another year. Billions spent every year just on that kind of medical care; billions that, if we had unlimited money and the elderly themselves wanted it, would be great to spend. But we don't, and in many cases, they don't.

My wife's mom Katy is a good example. Katy was a truly wonderful woman and an even better mother. She made it into her 90s and, naturally, started having more and more medical problems. A nurse in her younger years, she knew a lot about various conditions, treatments and so forth. In her final years, she didn't like getting hauled off to the hospital, getting poked and prodded, awakened every hour throughout the night, etc. She'd say "please don't take me to the hospital; I'm tired, just let God take me if he wants me." But nobody listened, and so Katy did live an extra few years. Years that were full of pain and hospital stays, years that cost many tens of thousands of dollars. She was so happy when the doctors said there was nothing else they could do. Katy knew she could finally be at rest; they gave her heavier and heavier doses of morphine, and she just peacefully slipped away. Finally.

I don't want to go out like that. Or in constant pain, wearing diapers, with no hope of recovering. I don't want to shuffle around in an old-folks home either, just waiting to die. But yet that's what I probably have to face, with our current attitude that it's quantity (number of years) that matters more than quality (of life). Not that I advocate the old Eskimo solution: give an old person a little food and then just leave them in the wilderness to die of cold. But at least in that model, society could use their resources where they'd do the most good (on the young and the strong), and any suffering was short-lived - in some ways a more humane and sensible solution than what we do now, IMO.

My wife and I, we're in perfect agreement. Neither one of us wants to end up in diapers, stuck in a hospital bed, or shuffling around drooling in an old folks home. We've made a pact; if one of us gets to that point (or ideally, before that point), the other has to take them out. Yup. Drive them up to the mountains and finish them off. Then finish themselves off, because society doesn't condone assisted suicide yet, and neither of us is going to spend their last years without the other, and in prison to boot. But don't get me wrong: we love life and really hope we have another 20 or 30 years of good living ahead of us. But if not...we've each had nearly 60 wonderful years of life, and if we were to die tomorrow, we're OK with it; we've had a great ride!

Of course as a society we're much too civilized to do anything like what the Eskimos did now, or what the Streblers have promised each other. Besides, lots of people want to live as long as possible, no matter what.

I'm not offering any specific solutions. It's a very, very messy business indeed, deciding how to cut back on health care for old people so that younger people have their chance at a decent life. But I'm saying we need to start thinking about this; it shouldn't be a taboo subject that nobody will consider. Because if we don't, the country's entire future is in grave danger.

Job Loss in America

2010-12-26T15:31:00.000-08:00

This essay is basically an update or addition to "America Reaps What it Sows", written a couple of years ago and archived on this blog. What's new, and the focus of this particular blog, is the plight of upper-middle class Americans who've lost their jobs in our Great Recession.

A great many educated, skilled, upper-middle class Americans have lost their jobs in the last couple of years, and are having a hell of a time finding anything even close to as good as their previous jobs. The TV show "60 Minutes" did a heart-wrenching story on this recently. Here are people in their 40s, 50s, and 60s who did everything right. They got college degrees, even Masters' and PhDs, and went to work for big, prospering companies, and moved up the ladder over the years. These folks were experienced professionals, middle managers earning $100,000, $150,000, $250,000 a year - and they had earned it!

They also earned the lifestyle that came with the territory. The 2500 sq. ft. house in a good neighborhood, the nice cars and SUVs, dining out a couple of times a week, kids going to expensive colleges, regular vacations to Hawaii and Europe - the good life. And now they're losing it all because after many months of unemployment, where a job at Target is the best they can find, their savings is gone, they're about to lose their homes, and they don't know what to do. And it's not their fault; they did everything right!

Or did they? I think maybe not. My thesis is that probably 80% or more of these folks bear a fair share of responsibility for their current situation. The vast majority, I contend, could have and should have done things differently, and wouldn't be in this pickle if they had. And this is more than just "Monday morning quarterbacking", where you look back with hindsight and smugly predict the past.

It is only prudent to live within your means, to save 10% or more of what you earn. This is not revolutionary thinking, this is common advice and has been for many generations. I'm willing to bet that most of these people didn't do that and instead - like most Americans - spent nearly 100% of their growing incomes, if not 105% or 110% (by racking up debt on their credit cards and borrowing against the value of their homes).

It is only prudent to be concerned about the possibility of an economic slowdown or depression, and to take steps to "recession proof" your career. Here's what I mean. Recessions happen, sometimes they're very ugly, and any educated person should know that. They should also know that some jobs are more secure than others. On the contrary, I suspect that the majority of these people felt their days of worrying about their careers ended long ago: they got the good jobs, now all they needed to do was put in their 30 or 35 years and then live happily ever after. But that wasn't very realistic.

In my own case, I left a lucrative career in the investments business years ago because, in part, I saw dark clouds in our nation's economic future and was willing to trade higher income for greater job security. So I became a teacher, taking a big pay cut, but knowing my job would always be there as long as I did what I was supposed to do. For years, lots of folks made fun of my decision as the economy kept moving forward and they raked in the big bucks, but you can imagine what has happened to a lot of those people in the last few years. He who laughs last....

Even more important is the concept of making yourself indispensable at your work site, the idea of - if your employer needs to let people go, make yourself the last person they're going to want to get rid of. How can you do that? From my years in the work world, and from what my wife - who was a manager with Union Bank - tells me, I know that many workers: show up late, call in "sick" too often, do the least amount of work they think they can get away with, do sloppy, low-quality work, don't care about serving the customer as much as they should, etc. In short, they act as if they are "entitled" to their jobs instead of grateful for them. Consequently, the rare employee who consistently does the opposite of these things tends to clearly stand out. He/she gets the promotions, will be the last one to be let go if times get tough and, should he/she have to be laid off, will likely get the most help finding a new job - "Hey Charlie, we're cutting back and I had to let Sue go, but if you're looking for a great employee, you should really hire her!"

Another way to make yourself indispensable is to keep growing professionally. Learn new languages, keep upgrading your computer skills, earn advanced credentials in your field, attend workshops to improve your interpersonal skills, etc. In my own case, I upgraded my Spanish skills in order to earn a bilingual teaching credential, became the first one at my school to earn national board certification, and the first to become an IB examiner. As a result, I'm a highly effective teacher, my students' test scores are impressive, I'm recognized in the school district for these things, and I'm confident that even without "tenure", my job is secure. If for some reason I was no longer needed at my school, I know that other schools would be more than happy to have me on their staff. People in other fields of work could have done the same kinds of things, making themselves ever-more valuable to their employers, increasing their "indispensability".

Do you imagine that most of those poor folks on "60 Minutes" - or most of the other Americans who lost their jobs and are now in a tough situation - had handled their money prudently, carefully chosen and/or modified their career choices and then done everything they could make themselves indispensable at work, in order to protect their future and that of their families? Again, and with apologies to those who did - I suspect that 80% or more did not and therefore, I'm not as sympathetic to their plight as most people are.

My Kind's Better'n Yours!

2010-12-26T15:28:00.000-08:00

(NOTE: Written a few weeks after 9/11, nearly 10 years ago. Some of this is outdated, but it still has something to say)

“Global Enemies Unite, Defeat Intergalactic Invaders”

Leastwise, that’s the way we’ve all kinda figured it would go down when the Martians, Romulans, or some other Evil Empire comes to Earth determined to exterminate, subjugate, or whateverelse-ate us. When push comes to shove, we will choose survival through putting aside our differences, and confront the common enemy from beyond. We’re even seeing a little of that right now in the battle of World v. Terrorists. Seattle and Genoa objections aside, we mostly think global cooperation is a good thing.

And yet, I’d be willing to bet that in this new One World, deep down inside (and if nobody else could call you on it), you still think that Western cultures are inherently superior to those of Asia, Africa, and pre-Columbian America. Don’t you? I mean – Greece and Rome and the rule of English law and the Industrial Revolution and technology and all that. Thanks, the rest of you, for gunpowder and the Buddah and zero and whatnot. But let’s get serious here. The West is the best!

As long as we are being honest, the real truth of the matter is that Americans (the U.S. kind) represent the ultimate progression of Western cultural advancement so far. Our Constitution. Our inventive genius and individualism. Our bring us your tired and your hungry and so forth. Our religious freedom. Our movies and TV shows, for cryin’ out loud! The U.S., with all its flaws, rocks the world, Americans are the luckiest people on Earth, and everyone else is, well – everyone else.

I’ve gotta tell you, though, that even in this great country of ours, we’re not all equal. I’ve lived in New York City, in Wisconsin, in Hawaii, in Idaho, and in Oregon. Great places all. But California’s the place I grew up in and where I live now; Californians have got it all goin’ on! Who else has the beaches, the mountains, AND the deserts? Contiguous 48 states’ highest AND lowest points? Silicon Valley and Hollywood? The world’s 7^th largest economy? And where have, like 75% of the hottest trends in clothing, language, music, etc. come from over the last 50 years? Folks that live elsewhere are…. nice people, but they’re like – whatever…

Actually, it just happens that in The Best State, there’s also a Best Town: San Diego. Northern California is beautiful, but how do you make a living there? San Fran is big fun to visit, but too expensive and too liberal. Smog Angeles is disgustingly crowded, dirty, and shallow. It is San Diego that comes closest to retaining California’s original promise. Cleaner and less crowded than Smell-A, more moderate and affordable than Frisco. SD has beaches, mountains, and deserts all in one county, Mexico as its southern neighbor, no serious earthquakes, a better climate than anywhere else, and gangs that are into chillin’ more so than killin’. We like our buddies up north, but honestly - what rational person would choose to live there rather than here?

Incidentally, I grew up in Imperial Beach, a little suburb on the south end of San Diego. The last affordable (read: gritty) beach town left in Southern California, with great surf year ‘round and a healthy dose of attitude. The rich brats had La Jolla; the goat ropers - Lakeside; the Earthpeople - Ocean Beach, but the real southern Californians were in IB. All those other guys? Posers.

Now, if you lived more than a few blocks from the ocean in IB, then you were still better than someone from, say, National City, or – God forbid - Santee. But the true, the best, IB’ers lived west of 4^th street. I lived on the 200 block of Citrus Avenue, which was the place in town. Close to the ocean, but far enough away not to get flooded. Quieter and classier than the dumpy streets to the south. Home to the town’s vet and about half of its best surfers. The 200 block of Citrus was the spot.

My family, and our house, just happened to be the best on Citrus. Seriously. Our house was the first one built on the block; Cape Cod style, pitched wood shake roof, with an honest-to-goodness white picket fence. Dad was the assistant fire chief in Coronado, mom the PTA president. Sis and I were good lookin’ kids, and even better students.

* * * * * * * * * * * * * * * * * *

One thing about being a kid – you don’t truly realize what you’ve got. I now realize that my family was (even though you don’t go around saying this in public too much) simply better than other families. And we lived in the best part of town, in the best town, in the best state, in the best country in the world. My God - what are the odds? But there it is. So deep down inside, I know that my family – my kind – is better than yours, or anyone else’s in the world for that matter! And that’s kinda sad in a way. For all of YOU.

Now, doubtless, I’m the only one who’s self-centered enough to think this way. But what if – long shot and all - what if the poor schmucks in Kodiak and Kansas and Kabul and every other disadvantaged locale around the world have been thinking all along that they are numero uno, the setters of the bar? Well, as pathetically self-deluding as that would be, it would – now that I think of it, explain a whole lot of stuff….

* * * * * * * * * * * * * * * * * *

Thousands of generations: that’s how long humans have been around, unless you’re still stuck on that whole Creation myth. And it’s only been in the last couple or so that we’ve not had to worry much about survival. I mean, assuming you’re not in the Third World (sadly – most humans still are, but they aren’t reading this), then you don’t spend a lot of time thinking about how to keep starvation, epidemics, wild animals, and weather disasters from wiping out you and yours.

But the flip side of that, obviously, is that for thousands of generations, these things were the major preoccupations of humans. Humans who bonded together in groups; extended families. Families that later collected to live together in tribes. Tribes that eventually joined to form confederations of all sorts. Everybody’s, every group’s, efforts were mostly about how to get safe places to live, how to get food, how to get good hunting grounds (later – good farming lands, ore deposits, etc). And how to keep the other guy from taking those things away from you and yours, because for thousands of generations “there’s never enough to go around” was more than just a dispassionate economic mantra. And that’s plenty enough time to pretty well hardwire us of all with certain behaviors and ways of viewing other humans.

So that’s what wars have mostly been about. And racism. And all the other types of isms that discriminate between the many variations of “us” and “them”. We’ve been programmed to take care of Number One first, and the further away someone else is (in all senses of the word “is”, Bubba) then the less likely we have been to care about them, value them, and accept them; the more willing we are to distrust, dislike, or attack them. This whole “me and mine are better’n you and yours” thing is why the NFL and their ilk are able to suck billions of dollars out of our cities’ virtual warriors; an artifice to fill the primal need in a land and time where actual war is inconceivable. Or had been, up until a couple of weeks ago…

* * * * * * * * * * * * * * * * * *

Here in the greatest country in the world, we’ve come so far in recent decades – we really have. Compared to where we were 100, 50, even 20 years ago, Americans are much more tolerant and understanding when it comes to other races, homosexuals, women’s rights, people with disabilities, Jews, Catholics - you name it. Of course, lots of the folks in those “you name it” categories are mad as hell, and ready to tell you what a rotten deal they’re getting even today. But the truth is that things are incalculably better than before, and mostly still heading in the right direction. I’m reminded of a friend from a sophisticated, wealthy European country. After I expressed envy for her country’s rich culture and traditions, she suggested that those were merely signs of her countrymen’s inability to break with the past, and allowed as how America – in constantly embracing new cultures, traditions, and peoples – was actually the place to be envied.

And so we come back to the truism that the U.S. is the best place on Earth. ‘Cuz in a lot of other places, the tolerance and understanding haven’t happened or, depending on your politics, haven’t been given the luxury of happening.

Bin Laden & Company are stuck in the past. A past of struggling to survive, a past of intolerance for other peoples and belief systems, a past where “my kind’s better’n yours” is more than just a smarmy sentiment – rather, it’s a call for no-holds-barred violence. Which then pretty well squashes our “can’t we all just get along?” options for dealing with them…

* * * * * * * * * * * * * * * * * *

. . . . . . . . . . . .

Americans have been awfully spoiled. And insulated. We, for the most part, have been ignorant about the desperation, aspirations, and religious convictions of the many millions of people who relate to Bin Laden and his message. We have been more than happy to frolic in the crass materialism and hedonism that have characterized the last couple of decades for too many Americans, while dismissing less fortunate nations and their criticisms of us as essentially irrelevant. For sure, let’s find the bastards behind the 9/11 attacks and eliminate as many of them as we can, and with extreme prejudice! But if that’s all we do, then the very best we can ever hope for is to get even, and how do you get even for the deaths of 3500 innocent people? In a way - a rude, horrific way, we’ve gotten a wake up call, one that could turn out to be the silver lining in this whole deal.

More Americans have rediscovered patriotism, charity, family, houses of worship, and respect for cops, firemen, and the military. This is a good thing. We can and should do more, though. It’s really great that in America scrawny white kids and beefy black kids can sing about what a big pimp gangsta’ they are, and how they’re gonna beat up, rape and/or kill their bitch (girlfriend), their mother, a cop, a faggot, or (e) all of the above. And it’s wonderful that our best ballplayers and business executives here have the opportunity to make 100 (one hundred) times or more than what the highest paid public school teacher earns. It’s also a testament to America’s level of personal freedom that a one-person family can drive an SUV that gets as much as several miles to a gallon of gas, and is large enough for the military to land small planes on.

God bless America for allowing these freedoms and opportunities! But why do we need to glorify these types of choices and allow them to define who we are and what America stands for? Why is gangsta rap fawned over by music critics, the Grammy Awards, and legitimized by the millions of Americans who’ve made it the nation’s second most popular music genre? Why are expensive, wasteful SUVs top sellers everywhere, especially among people who’ve never even seen a dirt road? Why does HBO (not Playboy, but HBO) have a multiple-Emmy winning series (The Sopranos) that will show one guy having sex with a woman doggy style at the same time she's giving another guy oral sex? These are not merely eccentric examples of our freedom of expression and opportunity, found on the margin of American society. These are what we put up front and celebrate as America’s Best!

Well, they’re not the best that we have to offer, and the shock of September 11’s events has helped many Americans see that more than a few members of the emperor’s court are naked. The events of one day alone have caused us to stop and reassess what’s important in this country and in our own lives. We see this already from overpaid athletes and business people who want to spend more time with their families and contribute more to society, and from entertainers who have turned down the violence and profanity a notch or two. Further trauma, from the twin threats of a war against terrorism and a possibly serious recession, will likely add to this trend.

And so the good news is the prospect that a few years from now we’ll be able to look back – wincingly - at the arrogance, irreverence, and just plain stupidity of Eminem, $250 million dollar baseball players, SUVs by Cadillac, oral sex on network television, and the like. Precisely because we have the greatest level of economic, political, and religious freedoms in the world, we have the luxury to change, to move forward from past mistakes and excesses. Wars happen because recent decades of peaceful enlightenment are insufficient to undo millennia of human nature. At least we can come away with something good out of this one. America should create a memorial to the lost heroes of September 11 in the form of putting its head back on straight.

Jon Strebler

11/2001

Creation vs. Evolution: We Can All Get Along!

2010-10-30T06:24:00.001-07:00

According to a nationwide Gallup survey (reported in the SD Union Tribune on November 17th, 2007), nearly two-thirds of all Americans believe in the idea of Creationism. That is, in this modern age the majority of us think that the Earth was created and humans placed upon it, all within the last 10,000 years! Dinosaurs, if they existed at all, romped along the plains, forests, and seashores side by side with our ancestors. Just to make sure you got this – about twice as many people in the U.S. believe this as believe in evolution. Excuse me?

What’s behind this strange peek into the American mindset? It’s not that we’re a nation of flat-Earth believers who overall deny what science has discovered. For example, as the evidence for global warming has increased, so has our nation’s willingness to believe in that theory. Today, about 95% of the world’s scientists believe that global warming is happening and that it’s a serious issue. Something like 75% of Americans now believe the same thing. OK – so we lag behind the scientists, but we’re mostly on the same page and that 75% number keeps rising. Yet something like 99% of all serious scientists acknowledge that evolution is a reality. In other words, there are about five times as many scientists who question global warming as those who question evolution. Or to put it in legal terms, 99% certainty on the part of legitimate scientists (including many who are devout Christians) is the same as saying evolution is a fact, beyond a reasonable doubt. That's why in court case after court case, schools have been instructed to teach evolution, and have been ordered NOT to teach creationism, at least in science classes.

Of course, there are quite a few “scientists” promoting Intelligent Design (the sneaky new way to say Creationism). But those who are strict creationists, who believe that evolution played no part at all in the development of life forms, that the Earth was created by God a few thousand years ago just as it is today - they’re mostly pseudo-scientists, not really taken seriously by their peers and their “evidence” is easily discounted by those using legitimate methodology. In other words, you'd be hard pressed to find even a handful of respected scientists - people whose research and methodology is accepted by the scientific community - who don't think that plants and animals have evolved over millions of years

An example of the things you hear from strict creationists is that fossils and other ancient records that document evolution cannot be reliably dated. It’s like this: Archaeologist A dates pre-human primate bones at 2 million years old, archaeologist B dates them at 2.2 million years old, while archaeologist C dates them at 1.9 million years old, all using slightly different measuring procedures. “Aha” - says the evolution deniers! “You see how arbitrary those dating methods are? Surely, then, they could just as easily be only 6400 years old!” I'm sorry, but scientists disagree over differences of 5 or 10% in their measurements, yet the Creationists want us to believe that the scientists are off by 99% (virtually 100% wrong). Why in the world do 2/3 of Americans think this kind of reasoning makes sense?

Why should this be? Why can Americans accept global warming, space travel, the existence of sub-atomic particles that can't be seen, computers that do a billion calculations a second - but not evolution? What explains the blind spot in these people’s logic and world view? Of course it’s mostly about religion. Part of it is that folks in the U.S. are more likely to be conservative Christians than other people worldwide. "The Bible says God created man in His image, and that's that." Most European Christians, on the other hand, are perplexed and a bit embarrassed by their American cousins' rejection of evolution. In Europe, evolution is commonly seen as a fact, and most Christians there don't see why that should be a problem. But unlike most European Christians, many Christians in the U.S. basically feel that by questioning Creation you question the Bible and therefore their faith. So they won’t hear of it. Interestingly, most Jews (whose religion is based on the Old Testament) don’t seem to share this curious interpretation, but then Conservative and Reform Jews are noted for their respect of science, and for being open-minded.

What it boils down to for so many is a choice: either the Bible or scientific evidence. Refined further still, it’s either science OR religion. Choose one or choose the other; you’re either with me or you’re against me – no middle ground. And that, unfortunately, is a terrible and absolutely unnecessary choice to have to make. Perhaps the greatest scientist of all time, Albert Einstein, said that “Science without religion is lame.” He also said that “Religion without science is blind”. So – what if we really DON’T have to choose between the two?

Well, that’s the very compelling case Dr. Francis Collins makes in his 2006 book The Language of God. Collins is an interesting individual. As a devout, born-again Christian, he most definitely believes in God, Jesus Christ as humanity’s savior, and of course the Bible. Yet as the former head of the prestigious Human Genome Project, he is one of the world’s top experts in the field of genetics (so important to the understanding of evolution) and a scientist of unimpeachable reputation. The thesis of Collins’ most interesting book is that evolution may disagree with the literal reading of a small part of the Bible, but otherwise it meshes just fine with Christian religious beliefs.

It's this very literal reading of the Bible that causes so much trouble, by the way. 3000 years ago, when Genesis was written and humans understood so little of the natural world, could God really have explained how He created the universe with a Big Bang 6 billion years ago? How He caused sub-atomic particles to interact with the various cosmic forces emanating from dark holes, multiple-dimensions, and all the esoterica of astro-physics that we have trouble grasping even today? Seriously - how could the Bible have talked about this stuff 3000 years ago? So does it really lessen the value of the Bible and religion to think that the writers of Genesis used wording and analogies that the people of the time could understand - rather than only writing what was strictly, literally, verbatim true? Not really, a rational person might conclude.

But back to Collins and his book: Evolution is a fact beyond any reasonable challenges, and shouldn’t be a problem for believers, he argues. Put another way, there is no conflict between science and religion, between being a faithful Christian and a believer in the facts of evolution. Collins painstakingly addresses the most common arguments that Creationists and Intelligent Designers proffer, debunking each of them with cold, hard, convincing facts. Convincing, that is, to anyone with an open mind. In his view, incidentally, God gave humans a mind and wants us to use it to help understand the world He has created and, thus, to know Him. Collins goes on to show why God exists, and how He must have been the original source of life, which then changed over time via evolution. Whether you believe that part or not; whether you’re a fervent Christian, a firm evolutionist, an atheist, or somewhere else in between, you should at least read what Collins has to say. But the bottom line is that this fight – evolution vs. religion – is really needless.

What makes this even more needless is that in 1996 Pope John Paul II proclaimed that Evolution is “more than just a hypothesis” and that it is compatible with Christian faith! Probably no modern Pope was more loved and respected than John Paul II. And whether you're a Catholic or a Protestant (or even if you're not a Christian at all), can you think of anyone more knowledgeable about Christianity and the Bible than the Pope? The Pope, most European Christian leaders,and most Jewish leaders believe is that the Old Testament is beyond question - EXCEPT in matters involving science, which of course has broadened our understanding of things immensely over the centuries. Evolution's not just a theory; evolution (a scientific fact) doesn't conflict with Christianity. So said the Pope, traditionally the leader of the Christian world! Even if they're not Catholics, why would 2/3 of Americans think that the Pope lacks faith in the Bible, or isn't a good Christian, or any of the other claims made of those who believe that evolution is a reality?

So just what are we arguing about? Most Jews (who wrote Genesis, incidentally), most European Protestants, and the leader of the Catholic church believe in evolution, so obviously you don't have to sacrifice your religious beliefs in order to think the same. This isn't 1256 or 1803, when such an idea would have been unthinkable, just as space travel, computers, and atomic bombs would have been unthinkable - blasphemous! We've learned SO MUCH; we have endless examples of irrefutable proof. Why won't the strict creationists look at this proof with open minds? How in the world are they going to attract the agnostics of the world, those who WANT to believe in Christianity, but aren’t sure? If American Christians' position on something as clear cut as evolution is one of denial, why should people follow their beliefs on matters of (non-verifiable) faith alone? Honestly, strict Creationists: let's limit the debate to whether God created life on Earth, or whether it arose all on its own - THAT's the only part of the evolution issue where there's any reasonable doubt.

Guess I'm a Racist! Or Maybe YOU are....

2010-10-30T06:21:00.000-07:00

This girl in one of my classes scolded me the other day: "That's racist!" She joined a huge group of students who have been taught to equate any mention or even hint of a person's race, nationality or ethnic culture with "racism". In this particular case, the class was talking about a news story that questioned whether Latino and black students were getting a good education. In a moment of digression, one of the students said that "life is like a box of chocolates", to which I ventured that in this case, it's a box of white, light-brown, and dark brown chocolates. "That's racist!", the nice young lady couldn't help but blurt out.

Her knee-jerk reaction is the result of an educational system, and indeed a world in general, that insists that we're all the same and that to suggest otherwise is hurtful and therefore wrong. What a bunch of hooey! Here we're going to look at some reasons why people need to lighten up a bit; why remarks referring to race, ethnicity, religion, etc. might be actually be better than this head-in-the-sand "we're all the same" stuff.

But first, let's get a better handle on the words racism and racist. According to Webster's Collegiate dictionary, racism is "a belief that race is the primary determinant of human traits and capacities, and that racial differences produce an inherent superiority of a particular race". It offers a second definition that racism is "racial prejudice or discrimination". A racist is simply someone who believes in and/or practices racism. Other sources offer similar definitions, but the point is that racism basically means that you see one race as superior to another and that you act in ways that are harmful to that (supposed) inferior race.

But what if you believe that race can be "one" determinant of human traits, if not "the primary" determinant? Does that still make you a racist? Or, what if you believe that different races have some different traits and capacities, but don't believe that this makes any race superior to any other race? Are you a racist? I mean, blacks have darker skin and kinkier hair and are more prone to sickle cell anemia than whites. Whites have rounder eyes, finer hair and are more prone to celiac disease than Asians. These things are facts, and unless you believe that they imply superiority of one group over another, does merely stating facts like these make a person racist? No. They don't.

By the way, the concept of racism and its development as a human survival mechanism throughout countless millenia is a topic discussed in another of these blog essays (My Kind's Better'n Yours!). The implication there is that racism is ingrained in most if not all of us to some degree or another. Over recent centuries and decades, the degree of racism has declined for most people, and we try to combat, hide, or deny that which remains. Nevertheless, the person who is 100% free of any residual racism (as defined above and discussed in the other essay) is a rare individual indeed.

But returning to word meanings, let's take the word discrimination and its variations. In context it usually means that someone is being treated badly, treated unfairly - as in "it's discrimination when Latinos are stopped by the police and asked for proof of legal status." But Webster's lists four definitions of "discrimination", and it is only the fourth one that deals with this concept. The first three definitions all refer to the act of distinguishing between one thing and another; seeing the difference between them. So a discriminating diner is someone who can tell a good meal from a bad one, while a discriminating painter can tell the difference between the colors teal and aqua. A person can discriminate between a dark skinned person and a light skinned person; between someone who speaks with an accent or doesn't; who eats a diet high in fish and one that is high in beans and rice. Those are all examples of discriminating (distinguishing one thing from another), yet none of them have to mean that someone is being put down while someone else is being elevated. Ironically, insisting otherwise actually indicates a failure to discriminate (see the difference between) one who is doing something hurtful and one who is merely stating a fact with no ulterior intent.

This brings us back to the box of chocolates. It makes sense that comparing a group of students to a box of "dirty trailer-trash white chocolates, lazy illegal light-brown chocolates, and beautiful proud dark chocolates" would be racist. But it's much harder to see how simply making the analogy between different races of kids and different colored chocolates is. Was the person implying superiority or inferiority of one "chocolate" over another? Was something previously said or done to send that message? Here's where the discriminating (observant, insightful) person needs to use their noggin, because if nothing more sinister is going on than comparing different colored kids to different colored chocolates, then it's all much ado about nothing.

Still - why would a person even go there? Knowing that society - especially in public schools - is hyper-sensitive to anything even remotely politically incorrect, why say something that somebody might manage to find offensive? Why open a can of worms when you don't have to? Well, there are several reasons. Some of us are just plain troublemakers and can't resist the temptation to defy the conventional wisdom, to push people's buttons, to do what you're not supposed to do. So sometimes they (I) say things that shock people, just to shock people.

There are also more serious reasons, however. I happen to be very proud of my ethnicity, my ancestors, my culture, etc. As discussed in My Kind's Better'n Yours, I think that I and mine are better than you and yours - no matter what "you" and "yours" happen to be. And guess what? I'd be willing to bet that deep down inside, you believe the same thing! Of course we're not allowed to say that in public, where somebody can quote us. But I think that we all (secretly) believe it nevertheless.

So here's the thing: I should be able to say that I'm Alsatian and Jewish and Scottish, and that I'm proud about all of the great things that go with being those. And I think you should be able to say that you're Mexican or African or Malaysian or whatever, that you should be proud of that and that your people and their ways are better than me or mine. Right on! Say it loud and say it proud!

But here's the key, the thing that makes this OK: none of this means you put the other guy down. Other people and other cultures are so interesting and so enjoyable to learn about and to experience! I might think mine's better, but that doesn't mean I can't appreciate yours. That doesn't mean that I want to push you down, hold you back, lower your self-esteem, etc. That doesn't mean I'm racist, if you refer back to what that word actually means. I think we can "all get along" just fine while celebrating our racial and cultural differences and without this pretense of all being uni-color, uni-culture, politically-correct androids.

So we're going to talk about races and cultures and religions, partly as an antidote to the prevailing trend of not doing so. We can talk about the good things that Christians have done over the centuries and the bad things; how the British spread civilization's benefits around the world and how they spread misery; whether Germans are inherently warlike, Jews themselves are to blame for the Holocaust, Asians are more scholarly, and whether illegal Latino immigrants are a net plus or minus for the nation. We'll discuss why basketball players are mostly black, surfers are mostly white, soccer players are mostly Mexican and whether that's OK or not. Is it true that most white people can't dance? That black folks talk too much in movie theaters? That Mexicans are lazy? That Asians are all over-achievers?

These typically taboo topics should be open for discussion, as exploring our differences and stereotypes is preferable to pretending they don't exist. Some people may be easily offended, and they can just get over it. Some may occasionally say things they shouldn't; they can apologize and then we can just move on. The goal is to be more informed about different people, their good and their bad, to be more tolerant of one another, and to genuinely get along - not just pretend that we do.

The other component of dealing with racism has to do with humor. Humor, as in making fun of people, stereotypes, nicknames, and so forth. Are you sufficiently offended and indignant yet? Look - I have this theory: you're not really friends with somebody, you don't have a solid relationship with them unless you can joke around with each other. This applies on a societal level as well as an individual level. We whites and blacks and Mexicans and gays and Jews - we're not really OK with one another as long as we tiptoe around the sensitive issues. When we can joke about ourselves and one another without hurting anyone's feelings - that's when we're cool, when it's real.

So the Mexican kids I grew up with were beaners and I was a pattie, and nobody cared. Maybe they came here illegally and maybe my people stole their people's land 150 years ago - or maybe they didn't. But who cares? How well do you play baseball, and do you surf? Are you cool or a dork? Do you have any cute sisters? Those were the things that mattered! And my Jewish friends, they're so damn cheap! But hey, I'm pretty cheap myself, so we compete to see who gets the best deals and joke about who's the real Jew! Our gay friends (who dressed up as fairies on Halloween, for cryin' out loud) complain about how we straight guys have no fashion sense, while we rag them about not being such flamers sometimes.

And so it goes; friends playing around and joking with one another as friends do, with race and religion and sexual choices being fair game as much as anything else. The key is that it's done gently and with a twinkle in your eye, not out of meanness, not with the intent to hurt. Intent is the bottom line, and sometimes a person's intent isn't clear. Besides, how well do you have to know a person before you can do this whole joking thing with them? Hmmm... that's not clear either. So it's a very tricky business, this humor thing.

Well granted it's tricky, and it's even touchier to do on a societal level. Not everyone has the playful sense of humor that can pull this kind of stuff off. And many people are too uptight or too indignant still about how their group has been treated to want to joke around. It's a fine line indeed between easing tensions and getting closer to someone, and pissing somebody off with an insensitive comment. So many people won't want to take the risk, choosing the sterile and phony, but safe route instead. But when it works, it's a good thing.

A good example of this is what Dave Chappelle used to do on his comedy show. Lots of his skits involved making fun of one group or another. The black white supremacist. The convention where different races drafted celebrities from other races. The hidden camera videos of how different races respond to music. As a white guy, I thought it was all absolutely hilarious! And I bet that most black folks, Asians, Latinos, and Jews were cracking up as much as I was. Far as I can tell, Chappelle wasn't doing it to put any one group down. Far as I can tell, Chappelle is proud to be black, but doesn't dislike whites or Asians or Mexicans or Jews. Sometimes I think Chappelle would go too far; sometimes people could get offended. Again - joking about race and religion and whatnot is a risky undertaking. But when taken as intended, Chappelle's kind of humor makes us all a little more comfortable with one another, and that is a good thing.

So I'm going to do my French, Russian and German accents when we read about those folks in my classroom and that's going to make me politically incorrect. Then I'm going to throw out my Chinese and Indian accents when we study Asia, which makes me not only politically incorrect but (again!) a racist. Somewhere along the line, I might wonder aloud why old age is harsher on a white woman's looks compared to black and Latino women, just how many pounds the average Mexican piles on between the ages of 18 and 30 from all the beans and lard in their diet, or if any other black kid could possibly act whiter than Keith. And, in large part because they don't consider the context in which the comments are made, it's all going to freak out a bunch of people and confirm that, yep - this guy's a racist. Whatever....

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Let's go back to where we started. Someone might be a "racist" to people who misuse the word and are unable to discriminate between just talking and joking about racial issues and discriminating against people of a particular race. But in that case, so is Dave Chappelle and just about every other comedian, along with you and almost everyone else at one time or another. But we're also not racists, not in the real meaning of the word, since our goal is not to show that one race or another is inferior and ought to be held down, harmed, or made fun of more than any other race. Yes, I realize that a lot of people still won't see it that way.

Actually, now that I think of it, I can't help my joking around, even when it may seem inappropriate. It's who I am, part of my heritage from the Jewish side of the family. It's not my fault! The use of humor is a well-known characteristic of the Jews, with Jewish comedians dominating in America from guys like Jack Benny, Milton Berle and The Three Stooges, to Woody Allen, Jerry Seinfeld and Billy Crystal. With less than 3% of America's population, Jews account for nearly 70% of the country's working comedians. (www.sillymusic.com/jewish_humor_comedians) So if you have a problem with my humor, maybe you're secretly defaming my people and their penchant for finding humor everywhere. Maybe it's YOU who's a racist, you hateful anti-Semite!