Real or Mythical? America’s Past Golden Age

Over recent years, there’s been a strong feeling in the wind to the effect that ordinary Americans had it better in the past, where “the past” can be any period from, say, the 1980s all way back to the 1950s.  In response to this feeling, economists and commentators have posted charts demonstrating that actually, the standard of living has improved.  See this discussion at X.

@talmonsmith says “the (losing) ideological narrative since 2016 — or really 08 if you frame Obama as a Change candidate and then Anti Corporate Raider vs Romney in 2012 — is laptop professionals telling people that things are more or less fine”..and he posts this chart.

To which @HistoryBoomer replies: “I don’t get this. The chart he used literally shows that, after a period of stagnation in the 70s and 80s, wages have been climbing since the mid-90s. Even for the bottom 10% of workers. What am I missing? Does he see something in this chart that I can’t see?”  And @StatisticUrban says: “The reality that American wages have risen, not stagnated, just rips apart countless political and ideological narratives. So much so that many just act like it hasn’t happened.”

For those who are sadly still X-less, here’s a chart of real hourly wages (2024$) by percentile, from 1973-2024.  If you look at the line for the 50th percentile–the median–note that the inflation-adjusted hourly wage in 2009 was $22.12, and that in 2016 was almost identical: $22.44.

Here’s an interesting and thoughtful analysis from Sebastian Jensen.  He looks not only at alternative measures of income over time (from here), but also at other indicators of well-being: self-reported happiness, suicide rates, the education system, dating, and more.

See also Noah Smith, who argues that “The great stagnation of American middle-class wages from 1973-1994. It was NOT during the era of hyper-globalization.”

Your own thoughts?

 

 

“Service Industries”

Phil Gramm and Don Boudreaux, in today’s WSJ:

Yet workers aren’t eager to do that (work in manufacturing plants), and for the past 60 years Americans have educated their children to enable them to work in the services industries where wages are higher and opportunities greater.

I wonder what Gramm and Boudreaux visualize when they use the term “service industries.”  It is a very, very broad category, ranging from Uber Eats delivery drivers to shelf stockers at Home Depot to plumbers and handymen to trash collectors to warehouse workers at Amazon to local CPAs and high-level management consultants. Also rock bands, software development companies, and used-car salesmen.

True also of jobs in manufacturing, ranging from assembly worker to skilled machinist or toolmaker to shelf-stocker to dispatcher/expeditor to industrial engineer to PLC programmer to plant manager and VP of manufacturing.

Note that both the factory and the service business will employ janitors doing very similar work, and he will be categorized as a manufacturing or service employee accordingly…unless the job of ‘janitor’ is outsource to another firm, in which case he will fall under ‘services’.

Note also that the work of a distribution warehouse worker and the work of a stocker/picker in a factory will likely be very similar, despite the fact that the latter is considered ‘manufacturing’ and the former is considered ‘services.’  It would appear that Gramm and Boudreaux would regard the job of the warehouse worker as somehow higher-value and more in tune with technological progress.

Also, that part about Americans having educated their children to enable them to work in the services industries where wages are higher and opportunities greater…are they really unaware with the problems with so much American education over past decades, resulting in a lot of people who having limited written communication and even more limited basic math abilities? A lot of people are in dead-end service jobs specifically because of their lack of these skills, and indeed in many cases can function in those jobs at all only because of the computer-based deskilling that has been applied to the work.

Your thoughts?

Trade, Tariffs, and Prices, continued

Palmer Luckey, founder & CEO of Anduril, on the importance of US manufacturing.

Warren Buffett had an interesting suggestion for an approach to tariffs: Import Certificates. The idea is that when you export products, you receive import certificates, according to the dollar value of the products exported.  In order to import products, you need to provide Import Certificates of equivalent value.  And the certificates trade. So the system would be self-balancing.

Buffett suggested this approach in a Fortune article more than 20 years ago, I have no idea if that’s still his view, but I think it’s an interesting approach. The original Fortune article is still online but paywalled, the content can be read without subscription here.

See also my post Trade, Tariffs, and Prices from last November, in which I cited an earlier post:

In a world with global and highly-efficient transportation and communications…and billions of people who are accustomed to low wages…is it possible for a country such as the United States to maintain its accustomed high standards of living for the large majority of its people?…and, if so, what are the key policy elements required to do this?

This question should be fundamental to discussions of trade policy, along with national defense and resilience considerations.  See also the discussion about tariffs and consumer price markups–it’s far from true that it’s always just a simple pass-though.

Economic Development: From the Roof, or From the Foundations?

An interesting thread by Kamil Galeev:

Why the USSR failed? There are two ways for a poor, underdeveloped country to industrialise: Soviet vs Chinese way. Soviet way is to build the edifice of industrial economy from the foundations. Chinese way is to build it from the roof. 1st way sounds good, 2nd actually works.

To proceed further, I need to introduce a new concept. Let’s divide the manufacturing industry into two unequal sectors, Front End vs Back End: Front End – they make whatever you see on the supermarket shelf Back End – they make whatever that stands behind, that you don’t see
Front End industries are making consumer goods. That is, whatever you buy, as an individual. Toys, clothes, furniture, appliances all falls under this category. The list of top selling amazon products gives a not bad idea what the front end sector is, and how it looks like.
Still, the production of ready consumer goods comprises only the final, ultimate element of manufacturing chain. The rear part of the chain remains hidden from our sight. We call it the Back End Back end products are not recognisable. You never bought an SMX 700 radial forge.

Read the whole thing.

I’m reminded of something Peter Drucker wrote in 1969:

In any aid program, the economist, especially the development economist employed by government, tends to impose his own values on the choice of priorities and projects. Understandably he likes things that look big, impressive, and “advanced”: a petrochemical plant, for instance. He likes the things he knows the poor “ought” to have. He has nothing but contempt for the “frivolous,” e.g., small luxuries. In this respect there is amazingly little difference between the Russian planners and the economists in the governments of the most “capitalist” nation.

The factory girl or the salesgirl in Lima or Bombay (or the Harlem ghetto) wants a lipstick. She lives in a horrible slum and knows perfectly well that she cannot, in her lifetime, afford the kind of house she would like to live in—the kind of house her counterpart in the rich countries (or the white suburbs) can afford. She knows perfectly well that neither she nor her brothers can get the kind of education they would like to have. She probably knows perfectly well that—if lucky—she will marry some boy as poor as herself and as little educated who, within a few years, \vill start beating her out of sheer despair. But at least she can, for a few short years, try to look like the kind of human being she wants to be, respects, and knows she ought to be. There is no purchase that gives her as much true value for a few cents as cheap cosmetics.

A cosmetics plant gives more employment per dollar of investment than a petrochemical plant. It trains more people capable of developing and running a modem economy. It generates managers, technicians, and salesmen. Yet the economist despises it. And the reliance on aid makes it possible for his moralism to prevail over economics and for his desire for control to prevent development.

(The Age of Discontinuity)

Of course Drucker understood the importance of the petrochemical plant; his argument is that things work better when the petrochemical plants are called forth by the cosmetics factories and other consumer-facing businesses, rather than planned from the top.

I don’t think the above points just apply to poor & undeveloped nations.  In the US, the development of the computer and semiconductor industries benefited greatly from the sales volumes and technical challenges created by the computer game field…which is not the kind of thing that a central planner would be likely to earmark as a critical industry for the future.

In a market economy, ‘industrial policy’ intended to spur vital industries via subsidies and tax incentives will often seem to make sense–the US certainly does need it own ability to produce high-end chips, for example–but carries the danger of starving other industries of investment dollars and talent. And some of those industries may turn out to have been just as critical, or more critical, than the ones focused on by the industrial policymakers.

Trade, Tariffs, and Prices

Several items:

1–At X, there’s some knowledgeable commentary on the relationship between tariffs and retail prices, from Craig Fuller @FreightAlley: “When products are imported into the US, the importer is charged a tariff based on the declared value of those imports, not the marked-up retail price consumers will eventually pay…The markup might be only 5% for big-ticket items like cars, while it could be as high as 500% for luxury goods. Most retail goods have markups of over 100% over their declared value.”  He discusses the alternatives available to importers and suppliers,  of which ‘raise retail prices’ is only one.  Link.

2–The WSJ, a while back, had several letters on tariffs in response to an article on that subject. One of them said:

Phil Gramm and Donald J. Boudreaux don’t mention the basic evil of tariffs: that they negate comparative advantage. If Product A can be produced cheaply or efficiently in Location 1 and Product B in Location 2, each location should concentrate on its speciality and trade to the benefit of both.

Imagine Massachusetts enacting a tariff on oranges to protect an industry of heated orange groves and Florida a tariff to support air-conditioned cranberry bogs. State politicians could trumpet creating a new industry, but OJ would be $25 a glass in Boston and cranberry sauce would be $10 a scoop in Miami. Tariffs amount to a “beggar thyself” policy. The Constitution’s framers recognized this and crafted the Commerce Clause to forbid restriction of trade by states. The same principle applies to trade between nations.

Trade based on relative efficiency of production, as for the orange/cranberry example, is a classic example of the advantages of trade.  But a high proportion of trade today is not of this nature: it is simply labor arbitrage, based on differentials in wages.  The primary reason why products made in China have been so much lower cost than those made in the US is because Chinese people would work for lower wages than US people. There was nothing inherent in Chinese geography or climate, or Chinese skill sets, that made assembly of iPhone more efficient in China than in Iowa.

3–In my Labor Day post for 2021, I said:

In a world with global and highly-efficient transportation and communications…and billions of people who are accustomed to low wages…is it possible for a country such as the United States to maintain its accustomed high standards of living for the large majority of its people?…and, if so, what are the key policy elements required to do this?

This question should be fundamental to discussions of trade policy, along with national defense and resilience considerations.

4–Bill Waddell, a very experienced manufacturing practitioner and consultant, who used to comment here sometimes, has a new book out:  Reclaiming American Manufacturing: Take Back the Middle Class From Globalism. A quick and worthwhile read, available on Amazon Unlimited.  Also, this post at LinkedIn.

5–Although offshoring is usually discussed in terms of its impact on manufacturing, there is also plenty of offshoring going on in service: Telemigration.

Your thoughts?