The Skeptical Optimist

GDP growth, Nov 2007

Increasing exports helped increase the BEA's estimate of third quarter GDP growth to 4.9% (from last month's estimate of 3.9%).  This should keep the debt clock (%GDP) ticking backwards. 

 

I wonder which politician will be the first to discover that good news.  One would think that those politicians feigning alarm at our "ballooning national debt" would now be happy to balance by pointing out our "faster-ballooning national economy" and our consequent "deflating national debt burden"—wouldn't one?  (I'm thinking of the same politicians who, when exports are rising, talk of the "plummeting dollar"—but when the dollar is rising, talk of the "ballooning trade deficit."  The ones who are hoping for a recession, but can't admit it openly.) 

Anyway, enjoy the backwards-ticking debt clock while it lasts.  Most GDP-watchers are expecting a Q4 slowdown, which in turn would at least slow down the rate at which it's decreasing.

Three Quizzes on Immigration

Tom Tancredo has a new campaign video out, and the subliminal message is clear: illegal immigrants are likely to be hooded villains who want to kill us.  Watch the video at this link. 

It's scary—unless, of course, you'd rather not let Tom Tancredo do your thinking for you, in which case it's a disappointing oversimplification of an important issue. 

Once when I was thinking about "illegal" immigrants, I was reminded of the time twenty years ago when a police spokesman told our neighborhood group that, even though it's "illegal" to run red lights, there are times when you should definitely go ahead and do it.  One of those times is when sitting there waiting for the light to change—while taking someone to the emergency room, for example—would be more costly than "breaking the law" by cautiously proceeding through the red light. 

In other words, when someone breaks a law, occasionally there's a chance that the law, not the person, was incorrect for that situation. 

Is it possible that our immigration law, and our ability to process would-be immigrants under that law, is way too ineffective and time-consuming, and therefore causes a portion of our "illegal immigration" problem?  Is it possible that, under current law and staffing, we cannot process desirable immigrants efficiently enough (including teachers, scientists, engineers, managers, and entrepreneurs)?  The US Citizenship and Immigration Service is all but admitting to that at their website.  Is it possible that some "illegal immigrants" achieved their illegal status by deciding not to wait for the red light to change? 

I think it's possible, but apparently Tom Tancredo doesn't.  So, to throw my two cents into the immigration debate, I assembled three quizzes of progressively increasing difficulty.  (The key to the red and blue color coding is after Quiz 3.) 

Unfortunately, I only have one of the answers above: the answer to Quiz 2, question (a) is "more than half" (see this Alan Reynolds article for more detail).  If you can quantify any of the others, feel free. 

I wonder if Tom Tancredo or Lou Dobbs can help us with any of the answers to Quiz 3?   I am especially interested in the answer to 3(d).   

FQ.07.47: Favorite Quote for This Week

Free trade only costs American jobs if we as a nation are too stupid to re-employ those workers relieved from menial jobs which other nations want to do.
—Dr. Rick Boettger

Brain Teaser of the Week

What's been happening to the real, pretax income of the middle class (...not to be confused with "real after-tax disposable income")?  You decide.  The two charts below should be self explanatory.

Do employee benefits benefit employees?

In the three days since I posted the article below this one, I've had to revise my opinion about employee benefits.  Specifically, I've had to revise downward my estimate of the number of people who actually consider them beneficial to employees. 

My assertion in that article was that when an employer pays an expense for an employee—one that would otherwise have been shouldered by the employee—that is "compensation" that is ignored when one talks of "wages" in isolation.  The reaction, most of it coming from those who apparently would rather keep the discussion of workers' compensation confined to money wages (my educated guess: for political reasons), ranged from honest objections at this blog, all the way to primitive name-calling—ironically, by people who prefer to remain anonymous—at other blogs. 

Google buys food and drinks for employees; many other companies do not.  Some companies have matching 401K savings plans for their employees; many do not.  Many companies pay health insurance premiums for their employees; some do not.  Some companies provide child care services for employees; many do not.  I was always confident that virtually everyone considered employer-provided benefits such as those to be "of benefit" to employees. 

But, as I said, I've had to revise my estimate.  Benefits apparently aren't benefits to those whose political talking points get more difficult if employee benefits are assumed to benefit employees.  If the cost of health insurance increases, and a company pays part or all of the increase, guess what: that doesn't "benefit" the employee; sure, it cushioned the blow, or even eliminated it, but somehow that's not good enough to be classified a "benefit."  (Makes one wonder how many employers realize that any extra money they'd pay out for health insurance cost increases would not be considered of "benefit" to their employees.) 

Whatever.  In my judgment, employee benefits benefit employees, just as money wages do.  Compensation (pretax) is the sum of the two, and real compensation (pretax) has increased significantly since the business-cycle-peak year of 2000.  And, because everyone's income tax rates went down since 2000, the after-tax effects would have to be even larger; too bad the BLS doesn't publish after-tax numbers. 

I've been called an "idiot" for that thought process; if it's true, I'm in good company.  A brief search turned up a column by George Will from last year: Prosperity Amid the Gloom.  Here's an excerpt:

It is said that workers' compensation has been stagnant. But to tickle that bad news from the statistics you must treat "compensation'' as a synonym for wages, and then ignore the effect of taxation on individuals' well-being.

Kevin Hassett and Aparna Mathur of the American Enterprise Institute, writing in National Review, say annual wage growth since 2000 has been 0.6 percent, but the annual increase in real hourly compensation, including benefits -- and if you do not include them, why are they called benefits? -- has been 1.3 percent. And taxes -- particularly those paid by middle-class families with children -- have declined substantially. 

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End note:

For a look at a blog where the discourse seldom rises above the primitive level of name-calling (by people who prefer anonymity), follow this link.  If you're like me, it won't end up on your daily rounds. 

Let's kill the "Stagnant Wages" myth

Every time I watch the Democrats debate each other, I can count on at least two things:

1. Unanimous agreement among the candidates that "wages have been stagnant" since the year 2000.

2. No pushback at all from the moderators, the audience, or the post-debate analysts.

Why is everybody letting the candidates get away with that misleading half-truth? 

"Wages" versus "Compensation"
To illustrate, let's say a friend of yours came to you for some advice as to which job offer she should accept:

• Job offer 1: Wage is $20.00 per hour; no benefits.

• Job offer 2: Wage is $20.00 per hour; benefits are health insurance, plus a matching 401K retirement savings plan. 

Assume all other aspects are equal.  Given that the wages are identical, which job offer do you advise your friend to accept?  Why? 

Obviously, "compensation" is more than just wages alone.  Compensation also includes the benefits.  (In 2007, the average worker enjoys $41 in benefits on top of every $100 collected in wages.)  So, that begs the question, Has workers' real compensation been stagnant since the year 2000? 

Fortunately for us (and for the presidential candidates), the Bureau of Labor Statistics (BLS) can help us out.  They've indexed real compensation (i.e., adjusted for CPI inflation) quarterly for the last 24 years, through Q4 2005, and published it on their data-rich website.  Their index uses Q4 2005 as the base quarter for calculating the index.  Here's how the BLS describes their compensation data: "The Employer Costs for Employee Compensation product is a quarterly survey that shows the employers' average hourly cost for total compensation and its components."

I charted the BLS numbers, and calculated the change in real compensation for the six years from Q4 1999 to Q4 2005.  A pleasant surprise: real compensation per hour has been the opposite of "stagnant"; in fact, it grew by 6.7% in the 2000-2005 interval.  That's better growth than any six-year period in the last twenty years, including 1995-2000. 

Click to enlarge:

Now that we've discovered that encouraging data, I optimistically anticipate that one of the following two things will happen, any time now:

• The Democratic candidates will correct their rhetoric, and begin praising the trend in workers' compensation since the year 2000; OR...

• The candidates will change nothing, sticking with half-truth talk about "wages"—but will be properly embarrassed by moderators, or audience members, or post-debate analysts who will ask them follow-up questions about the robust growth in workers' compensation since the year 2000.

Which of those two do you think will happen?  [It's a good thing I'm not a pessimist, or I'd have to lean towards a third possibility: The candidates will change nothing, and nobody will call them on it.] 

====================
Data sources:

• BLS web page (see "ECI Constant-Dollar historical listings, SIC basis").

• BLS text file with several cuts at the data; I used data from Tables 3 and 4.

FQ.07.46: Favorite Quote for This Week

The smothering of incentive and the cultivation of mendacity are a characteristic weakness of large bureaucracies, whether public or private.
—George S. Landes, The Wealth and Poverty of Nations, 342.

Farm Subsidies in Manhattan

Corporate Welfare is alive and well in the farm subsidies bill.  After seeing this article, I zoomed in more closely on Manhattan, just for fun.  Here's the shot; red circles are proportional to the size of farm subsidies:

Does Manhattan has a lot of poor farmers in need of "farm aid"?  I doubt it; but in any case, the farm subsidy program seems to have outlived its original intent, don't you think?   

To zoom in and view the size of the subsidies in any part of the country, the map is at this link.  (Which agribusiness is getting paid millions in your region for not growing something?) 

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ps-

Not only could the trend in government spending (see article immediately below this one) use some help, but Robert Reich asserts that the biggest single thing we could do to ease the illegal immigration problem would be to eliminate agriculture subsidies.  Why, then, can't our politicians allow the farm subsidy program to die, or to be phased out over a few years? 

Deficit Watch thru Oct 2007

Those of us hoping for the budget to move into balance in time for next year's election didn't get any help from the Treasury's October numbers.  If the current trends for tax receipts and spending continued, the budget wouldn't balance until August of 2009.  Click to enlarge.

The biggest contributor to the sluggishness seems to be that corporate tax receipts have flattened.  I've heard some positive anecdotal news about corporate earnings and about 3rd quarter GDP growth (soon to be revised upwards to 5%); with luck, that will get corporate tax receipts growing again.  We'll need something significant to get the crossover date back into election year.

Ultracapacitors versus Oil

Just a quick news item on the energy front: a new development in ultracapacitor technology, thanks to research at MIT.  Will it turn out to be another small step towards oil independence day?  Maybe; in any case, I hope the pace of this kind of discovery accelerates; the more experimentation like this, the better.  The article is titled  The Charge of the Ultra - Capacitors, by MIT's Joel Schindall. 

When new technology enables us to migrate to electricity (from oil) for a sufficient portion of our personal transportation energy, North America would be able to supply all the remaining oil we'd need—as I noted in this article last year.  Currently, a little less than half of our oil is imported from other continents; here's a pie chart of the USA's oil sourcing, as of August-September 2007. 

[Source data from EIA and USCB.]

I look forward to the day we can "fill up" our cars directly or indirectly from the electric grid instead of the gasoline or diesel pump.  We'll need more electric generating capacity for that kind of shift, but we North Americans will have several options for meeting that challenge.  For now, the bottleneck is our inability to store enough electric potential affordably in a small enough volume for use in personal vehicles.  Ultracapacitor technology might help eliminate that bottleneck, and that's why news like this is encouraging.