Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong

Non-Supervisory Real Hourly and Weekly Wages

Andrew Samwick's meditation object for the week:

Rising Economic Insecurity

If you are in DC the week after next on May 29, this looks very useful:

Economic Policy Institute forum.... Breakfast & Registration: 10:00 - 10:30 AM. Presentations & Discussion: 10:30 AM - 12:30 PM. Book signing: 12:30 - 1:00 PM

Moderator: Louis Uchitelle, The New York Times...

Panelists:

Jacob Hacker, Professor of Political Science, Yale University, Institution for Social and Policy Studies; Elisabeth Jacobs: Fellow, Harvard University, Multidisciplinary Program on Inequality & Social Policy. Hacker and Jacobs will present and discuss their new study: "The Rising Instability of American Family Incomes, 1969-2004."

Peter Gosselin, Los Angeles Times. Gosselin will discuss his new book, High Wire. The Precarious Financial Lives of American Families (Basic Books, June 2, 2008) (available for purchase and signing at event).

Discussant: Brink Lindsey, Cato Institute. Author of The Age of Abundance: How Prosperity Transformed America's Politics and Culture. (Collins)

Economic Policy Institute
1333 H Street, NW
East Tower, Suite 300
Washington, DC 20005

DeLong Smackdown Watch: John Yoo's Torture Memo and Academic Freedom

David Levine writes:

The Torture Memo: The Torture Memo and Academic Freedom: Consider Professor Left, on leave at CEA, who went on national TV to argue that a rise in the minimum wage would not reduce employment, increase prices, or harm small business's profits. Professor Left knew that at least one of these effects was essentially certain to occur, but had a political job to do.

Consider Professor Right who, a few years later, went on national TV to argue that a cut in capital gains tax rates would raise tax revenues. He knew full well that the short-term boost in tax revenue will be overwhelmed by revenue cuts in later years. He hid that fact on TV, in Congressional testimony, and in memos to executive branch decision-makers.

Professor Center is more mainstream than his colleagues on the left and right. He goes on national TV to argue that a free trade pact will increase U.S. employment. In fact, Professor Center believes unemployment will be roughly unchanged as it is largely determined by the Federal Reserve. Employment will probably be lower, Prof. Center believes, because the free trade pact might increase employment with the trading partners and reduce immigration to the United States.

Assume that each policy in fact had (somewhat predictable) harmful consequences: job loss for minority teens, massive budget deficits, and a financial crisis in the southern trading partners that reduced their ability to purchase U.S. exports. Was it professional misconduct to push these policies while declining to mention (and sometimes implictly denying) the downsides? Do those recommendations disqualify the professors from teaching? Would it matter if the economists had line authority and made policy decisions, or were trusted advisors who were very influential with both parties, not just standard wonk advisors?

I mention these cases not to defend Professor Yoo or the despicable U.S. policy of torture. I mention these cases to suggest the issues of academics acting as political advisors and decision-makers are tough.

I agree that the questions are tough. I do think that:

• Left-wing economists should not say that minimum-wage increases would neither (a) decrease employment, (b) rise prices, nor (c) diminish profits.
• Right-wing economists should not say that capital gains tax rates would raise tax revenues--unless they in fact do believe that the short-term boost in tax revenues outweighs properly-discounted revenue losses in the out-years.
• Centrist economists should not say that free trade will boost U.S. employment--unless they believe that free trade will make the country richer and so actually boost labor supply and demand.

But neither left-wing, right-wing, nor centrist economists say such things in the classroom: in the classroom we all teach what we believe. At what point do violations of intellectual integrity by economists under message discipline become grave enough to warrant some kind of sanctions--that is not a question I know the answer to. I think that there is a line that should not be crossed, and that some form of responsibility for line-crossing would be a good thing, but I am not at all sure where the line is or what the sanctions should be.

Inhospitable Job Market to Greet College Graduates

Larry Mishel and Elise Gould write:

Economic Snapshots: This month’s crop of new college graduates will confront a more inhospitable job market than their predecessors faced in 2001, the beginning of the last recession.... [T]he labor market for recent college graduates (ages 23-29) was weaker in 2007 than before the last recession in 2001. Inflation-adjusted average hourly wages for young college graduates... are still lower by about $0.60 for women and $1.60 for men than they were six years ago... a college degree has become less of a guarantee of receiving health and retirement benefits on the job... college graduates in entry-level jobs... less likely to receive employer-provided health insurance... over 5 percentage points lower than in 2001, and less than half of young college grads now receive any form of pension coverage on the job (see Figure B).

The fact that new college grads are doing poorly is a troubling sign, since those with higher education and more skills required in the new economy... are expected to be faring well...

Will David Card and Alan Krueger Be Amused?

Megan McArdle writes:

Megan McArdle: So if the only support for your positions [on the minimum wage] comes from movement think tanks (plus maybe a few marginal academics), your position is probably extremely weak...

Jeff Madrick on Peter Gosselin on Risk and Uncertainty

Jeff Madrick writes:

Jeff Madrick on ‘High Wire,’ Peter Gosselin’s Look at the Economic Meltdown: Peter Gosselin... has done the most convincing job I’ve seen in capturing the failures of America to deal with a changing, complex and far less generous economy than it has known in the past....

Peter Gosselin’s admirable objective is to show how many people of all income levels are now insecure and afraid in an economy that Americans are constantly told, by Republicans and Democrats alike, has long been back on track.... But, in truth, the American economy has not been on track for a generation now....

The main theme of Gosselin, a veteran reporter for the Los Angeles Times, is the rise of deep-seated financial, health and material risk. He gathers the many pieces of the new economic America together quite beautifully, even elegantly, and brings them alive with interesting and not the usually predictable individual examples....

[T]here are the 401(k)s. Gosselin says the major shift in America toward a riskier society regards retirement. Three out of five employees who are fortunate enough to have a private retirement plan now don’t have a pension at all but rather a defined contribution plan like a 401(k).... Many and probably most will save too little and invest unwisely.... But what makes Gosselin so interesting is that he digs further for the pertinent government failures. For example, the Employee Retirement Security Act (ERISA), passed in 1974 originally to protect workers, now, as he writes, protects big companies.... A former insurance consultant told me recently that some employees are paid at insurance companies according to how many claims they can deny. I was shocked. Naive me, and after all these years. Of course, that is how the companies operate. Create incentives to maximize profits.

Gosselin’s central claim is based on some research he did to show that the proportion of American families whose incomes are likely to fall substantially has risen sharply since the 1970s....

Gosselin, however, puts his finger on it. Poverty is not about black-and-white deprivations in the contemporary world. The poor in America live in total chaos... “pay cuts and eviction notices, car troubles and medical crises, hirings and firings--that keeps reversing their families’ advances, rattling their finances, nudging them toward the economic brink.”... What do the poor borrow for? A good restaurant meal? A pair of impossibly expensive sneakers? Maybe, once in a while. But Gosselin looks into a case or two: $170 to fix the steering on the car, a $300 cash advance for the rent, another $1,000 to bring a wife to the U.S. from Central America....

The costs of education, health care, drugs and public investment have gone up much faster than incomes. So people can buy clothes, food or electronics more easily, but they can’t buy health care, or they have to move into an expensive house to get a good k-12 education for the kids.... This is why Barack Obama is right when he talks about bitterness and anger, and why claims that the political attitudes are only about culture shifts is wrong.

Now the experience of the 2000s has brought the message home. Wages haven’t gone up at all in the 2000s, despite record profits and decent productivity growth. Family incomes are down. These are unprecedented in the modern economy.

And all this follows a generation of rising insecurity, uncertainty, unrewarded effort and for many a treadmill of growing despair, cynicism and occasional chaos that this author describes so clearly, even elegantly. Gosselin’s gotten the new American condition better than anyone else I’ve read.

Bob Margo: Residential Segregation and Postal Employmnt

Bob Margo has evidence on the "spatial mismatch" account of the rise of urban Black ghettos:

http://www.nber.org/papers/w13462.pdf: In 1990 and 2000, residential segregation was associated with poor economic outcomes for African-Americans. Earlier in the century, the opposite was true. The economic deterioration of African-American enclaves has been attributed either to the departure of the black middle class or to the decline in centrally-located jobs. Postal employment -- well-paid work that has, for largely exogenous reasons, remained in central cities -- is a useful test case to distinguish between these explanations. Black postal employment is unrelated to segregation before 1960, when middle class role models, including a large contingent of postal employees, were close at hand. From 1960 onward, as other employment opportunities disappeared, blacks in segregated cities were more likely to work for the postal service (relative to whites in their area). This relationship is true only for postal clerks, many of whom work at centralized processing plants, not for mail carriers who work throughout the metropolitan area. We interpret this pattern as broadly consistent with the importance of job availability for the economic health of black neighborhoods.

The Recession-Like Episode Continues...

Payroll employment down 20K in April, and now 260K less than in December.

Or, in other words, an employment gap that has widened by 750K over the past four months.

Elsby and Shapiro: Stepping Off the Wage Escalator: A Theory of the Equilibrium Employment Rate

Michael W. L. Elsby and Matthew D. Shapiro (2008), "Stepping Off the Wage Escalator: A Theory of the Equilibrium Employment Rate" http://www.eief.it/it/files/2008/04/stepping-off-2008-04-01.pdf

Abstract: This paper develops a theory of equilibrium labor supply based on the lifelong return to work. This lifelong return to work is the product of the general wage level and the return to experience. The paper shows how the return to experience has different effects from general wage growth because it creates a wedge between the return to work and not working. The model of the paper thereby generates a powerful relationship between employment rates and productivity growth. Calculations based on the model are able to replicate the comovements in employment rates and productivity growth for low-skill workers in the United States.

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• Blanchard surveys various approaches to mapping productivity growth into wages. He concludes that these approaches “deliver, to a first order, long run neutrality of unemployment to productivity growth.” He points out that existing theories may have different implications for the short and medium run effects of productivity growth, but concludes our understanding of the link between productivity and employment is weak. “The truth is we do not know. And this is a serious hole in knowledge” (Blanchard, 2007, p.416)...

Paul Krugman on Youngstown, Ohio

Paul Krugman writes:

Dying Midwestern city blogging: Youngstown, Ohio, is the poster child for towns where the factories left and aren't coming back.... Yet there have been better and worse periods. Nonfarm employment in the Youngstown-Warren-Boardman metro area actually rose in the 1990s, before falling again this decade (I'd add pre-1990 data, but the BLS doesn't have it.) And small-town Americans, contrary to myth, do drink lattes (small luxuries are sometimes all they can afford). The Starbucks store locator shows 5 in the metro area...

Paul Krugman on Labor Market Deterioration

Paul Krugman writes: "the labor market has gotten a lot worse over the past year, not just in the last few months."

This graph is U6: "Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers..."

Paul goes on:

Labor market deterioration - Paul Krugman: I've argued on many occasions that the official unemployment rate has been a poor guide to the reality of the labor market in recent years...

Morning Coffee: Free vs. Fair Trade

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March 07, 2008 Free Trade and Fair Trade: SIEPR 2008 Economic Summit Conference

J. Bradford DeLong

The question of "free" versus "fair" trade, has three baskets: an environmental regulation basket, a labor-standards and freedom basket, and a "wages basket."

The first two can, I think, be disposed of quickly. We don't want those able to bribe governments in other countries to poison people or the globe by turning other countries into pollution havens. We don't want environmental standards to be used to freeze the world distribution of wealth and keep people in other countries hungry, illiterate, and barefoot. The difficulties that remain are those of implementation.

Similarly, we want expanding trade to be a force for opportunity rather than for oppression: we like it when expanded trade gives ordinary people a path to a better life; we don't like it when expanded trade gives rich and powerful people in the cloud city of Stratos an incentive to round others up and put them to work in the xenite mines. As then-Principal Deputy IMF Managing Director Stanley Fischer warned the great and good at the 2000 Federal Reserve Bank of Kansas City's Jackson Hole Conference, there is nothing in the ILO's principles that we cannot and very little that we should not be eager to endorse, all of us. The difficulties that remain are, once again, those of implementation.

The question of trade and wages remains: To what extent are rich countries obligated to open their markets to poor countries when the consequence is falling wages for the poor in the rich--bearing in mind that the poor in the rich are often wealthier and have more opporunity than the rich in the poor? To what extent do rich countries do themselves well--serve their national interest--by opening their markets to poor countries even when the consequence is falling wages for the poor in the rich?

Let me make four remarks on this "trade and wages" basket:

First, between 1950 and 1997 trade and wages weren't an issue: our foreign trading partners raised their own relative wage levels at least as fast as globalization enhanced their influence, and there was no net effect of trade on wages--no link from greater openness to the global economy to greater inequality here at home.

Second, at times between 1950 and 1997 trade and wages became a political issue as a way of distracting attention from true problems. The voters of Michigan in 1985 did not want to hear that the problems of Michigan's manufacturing industries were home-grown--in the fecklessness of management and in the Reagan administration's budget deficits that pushed up interest rates which pushed up the value of the dollar and made the goods they made uncompetitive on world markets. They wanted, instead, to hear that the Japanese were doing something clever and illegitimate.

Third: since 1997 or so the link between expanded imports and wage inequality has become real, as our imports now embody a much larger amount of factors competing with our own lesser-skilled than they used to. How large? I don't think we know. Paul Krugman is now writing a paper for the Brookings Institution in which he essentially throws up his hands at the question. But there are two points worth noting: (a) the effects of trade on pre-tax wage inequality are much smaller than the effects over the past generation of changes in the tax system on after-tax income inequality; (b) the effects of trade on inequality of opportunity are much less than the effects of educational inequities on inequality of opportunity.

Fourth, to the extent that we in the United States begin thinking of trade restrictions as a way to fight inequality, we are setting ourselves up for extraordinary trouble late in this century--extraordinary damage to our long-run national security.

Think of it this way: Consider a world that contains one country that is a true superpower. It is preeminent--economically, technologically, politically, culturally, and militarily. But it lies at the east edge of a vast ocean. And across the ocean is another country--a country with more resources in the long-run, a country that looks likely to in the end supplant the current superpower. What should the superpower's long-run national security strategy be?

I think the answer is clear: if possible, the current superpower should embrace its possible successor. It should bind it as closely as possible with ties of blood, commerce, and culture--so that should the emerging superpower come to its full strength, it will to as great an extent possible share the world view of and regard itself as part of the same civilization as its predecessor: Romans to their Greeks.

In 1877, the rising superpower to the west across the ocean was the United States. The preeminent superpower was Britain. Today the preeminent superpower is the United States. The rising superpower to the west across the ocean is China. that was the rising superpower across the ocean to the west of the world's industrial and military leader. Today it is China.

Throughout the twentieth century it has been greatly to Britain's economic benefit that America has regarded it as a trading partner--a source of opportunities--rather than a politico-military-industrial competitor to be isolated and squashed. And in 1917 and again in 1941 it was to Britain's immeasurable benefit--its veruy soul was on the line--that America regarded it as a friend and an ally rather than as a competitor and an enemy. A world run by those whom de Gaulle called les Anglo-Saxons is a much more comfortable world for Britain than the other possibility--the world in which Europe were run by Adolf Hitler's Saxon-Saxons.

There is a good chance that China is now on the same path to world preeminence that America walked 130 years ago. Come 2047 and again in 2071 and in the years after 2075, America is going to need China. There is nothing more dangerous for America's future national security, nothing more destructive to America's future prosperity, than for Chinese schoolchildren to be taught in 2047 and 2071 and in the years after 2075 that America tried to keep the Chinese as poor as possible for as long as possible.

And let me stop there.

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2008 SIEPR Economic Summit: Critical Issue Sessions and Panelists:

March 7: 4:30-5:45pm: Session II: Is Free Trade Fair Trade? * Moderator: Dixon Doll, SIEPR Board member * Brad DeLong, Professor of Economics, University of California, Berkeley * Alan Taylor, Professor of Economics, University of California, Davis * David Dollar, Country Director, China and Mongolia, World Bank

Frances C. Arrillaga Alumni Center, 326 Galvez St., Stanford Campus

http://siepr.stanford.edu/SummitAgenda2008.pdf

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http://www.j-bradford-delong.net/2008_mov/Free_and_Fair_Trade.Mobile.m4v

http://www.j-bradford-delong.net/2008_mov/Free_and_Fair_Trade.Medium.m4v

http://www.j-bradford-delong.net/2008_mov/Free_and_Fair_Trade.Large.m4v

Special Current Macro Situation Employment Report Lecture: Econ 101b: March 7

Lecture Audio

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• Last Week: Growing Risk Premiums...
• This Morning: 1/100 of a Great Depression Arrives on Our Doorstep--and the Federal Reserve Reacts
  • Today: Payroll Employment Report
    • Brad DeLong's Slides: Employment Report Details
    • Brad DeLong's Slides: Meaning for the Economy: Rex Nutting
  • Financial Market Reaction: Gurk!!
  • And the Federal Reserve Response...

2008 SIEPR Economic Summit

Critical Issue Sessions and Panelists: March 7: 4:30-5:45pm....

Session II: Is Free Trade Fair Trade? * Moderator: Dixon Doll, SIEPR Board member * Brad DeLong, Professor of Economics, University of California, Berkeley * Alan Taylor, Professor of Economics, University of California, Davis * David Dollar, Country Director, China and Mongolia, World Bank

http://siepr.stanford.edu/SummitAgenda2008.pdf

Frances C. Arrillaga Alumni Center, 326 Galvez St., Stanford Campus

Why the Unemployment Rate Is Not What We Should Be Looking at

David Leonhardt:

Unemployed, and Skewing the Picture: [Carroll Wright's] survey asked town assessors to estimate the number of local people out of work. Wright, however, added a crucial qualification. He wanted the assessors to count only adult men who "really want employment."... Wright is the father of the modern unemployment rate.

This Friday, the government will release the latest employment report.... Whatever the survey ends up showing, however, you can be sure of one thing: Politicians will be quick to point out that joblessness remains low by historical standards. "Five percent is still a low unemployment rate," Ed Lazear, the chairman of President Bush's Council of Economic Advisers, said recently.... Statistically, all this is true enough. But it's also deeply misleading.

Over the last few decades, there has been an enormous increase in the number of people who fall into the no man's land of the labor market that Carroll Wright created 130 years ago. These people are not employed, but they also don't fit the government's definition of the unemployed -- those who "do not have a job, have actively looked for work in the prior four weeks, and are currently available for work."

Consider this: the average unemployment rate in this decade, just above 5 percent, has been lower than in any decade since the 1960s. Yet the percentage of prime-age men (those 25 to 54 years old) who are not working has been higher than in any decade since World War II. In January, almost 13 percent of prime-age men did not hold a job, up from... just 6 percent in 1968.... [P]rime-age women.... About 27 percent of them don't hold a job today, up from 25 percent in early 2000.

There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed.... second possible explanation -- a jump in the number of people who aren't working, who aren't actively looking but who would, in fact, like to find a good job -- is less comforting. It also appears to be the more accurate explanation.

Various studies have shown that the new nonemployed are not mainly dot-com millionaires or stay-at-home dads... [but] those who have been left behind by the economic changes of the last generation... replaced by technology... gone overseas.... These nonemployed remain a distinct minority of the population. But the growth in their numbers is one reason that overall wage growth has been so weak lately.... [T]here is no doubt that the unemployment rate is a less telling measure than it once was. It's simply no longer the best barometer of the country's economic health. A truer picture can be found elsewhere, by looking at compensation growth, for instance, or to changes in the percentage of the employed...

How Large Is the Depressing Effect of Increased Trade on the Wages of Blue-Collar Americans?

Paul Krugman says that he does not know.

From his first draft for the spring 2008 BPEA:

Paul Krugman (2008), "Trade and Wages, Reconsidered": [T]he change illustrated in Figure 15 seems to resemble the actual change in North-South trade since the early 1990s.... The share of advanced country GDP spent on imports from developing countries rises sharply, because components are shipped to developing countries for assembly, and the assembled goods are then exported back tothe first world.... [T]he actual effects on workers in the advanced economy would reflect a sort of Stolper-Samuelson effect: the real wages of... unskilled workers would fall.... outsourc[ing] labor-intensive industry segments to the third world would depress the demand for less-skilled workers, a shock not captured by data that lumped labor-intensive assembly operations together with skill-intensive component manufacture [in the same industry]....

[N]ote, however, that this example does suggest that the type of calculation performed by Bivens (2007), in which the distributional effects of trade are assumed to be essentially proportional to the import share... may exaggerate the distributional effects of recent trade growth. In this example, the trade share grows fourfold, but the distributional effects do not grow in proportion.... [M]uch of the content of the new imports from developing countries is actually skill-intensive production from advanced countries.... If the United States imports computers from China, and China assembles computers largely from components made in Japan, only the assembly share of the sales price reflects labor-intensive imports....

Nonetheless... the rapid rise in manufactures imports from developing countries probably is, indeed, a force for growing inequality... factor content calculations suggesting otherwise are missing the essence of what is happening....

What really comes through from the analysis here, however, is the extent to which the changing nature of world trade has outpaced our ability to engage in secure quantitative analysis--even though this paper sets to one side the growth in service outsourcing.... Plain old trade in physical goods has become remarkably exotic. In particular, the surge in developing-country exports of manufactures involves a peculiar concentration on apparently sophisticated products, which seems at first to put worries about distributional effects to rest. Yet there is good reason to believe that the apparent sophistication of developing country exports is, in reality, largely a statistical illusion, created by the phenomenon of vertical specialization....

How can we quantify the actual effect of rising trade on wages? The answer, given the current state of the data, is that we can’t... [I]t’s likely that the rapid growth of trade since the early 1990s has had significant distributional effects. To put numbers to these effects, however, we need a much better understanding of the increasingly fine-grained nature of international specialization and trade.

Source: Paul Krugman.

Source: Paul Krugman.######

The Tudor-Era Fall in the English Standard of Living

Hoisted from Comments: Bloix quotes from:

William Harrison (1577), "A Description of Elizabethan England": The bread throughout the land is made of such grain as the soil yieldeth; nevertheless the gentility commonly provide themselves sufficiently of wheat for their own tables, whilst their household and poor neighbours in some shires are forced to content themselves with rye, or barley, yea, and in time of dearth, many with bread made either of beans, peas, or oats, or of altogether and some acorns among, of which scourge the poorest do soonest taste, sith they are least able to provide themselves of better-- For, albeit that there be much more ground eared now almost in every place than hath been of late years, yet such a price of corn continueth in each town and market without any just cause (except it be that landlords do get licences to carry corn out of the land only to keep up the prices for their own private gains and ruin of the commonwealth), that the artificer and poor labouring man is not able to reach unto it, but is driven to content himself with horse corn %u2014 I mean beans, peas, oats, tares, and lentils: and therefore it is a true proverb, and never so well verified as now, that "Hunger setteth his first foot into the horse-manger."

William Harrison (1577), A Description of Elizabethan England XXXV:3 The Harvard Classics (New York: P.F. Collier & Son, 1909) http://www.bartleby.com/35/3/

Real Wages of Construction Workers in England

Source: Jan de Vries 2/13/08 lecture, originally from Phelps-Brown and Sheila Hopkins (1956), "Seven Centuries of the Prices of Consumables, Compared with Builders' Wage- Rates," Economica 23:92 (November), pp. 296-314 http://links.jstor.org/sici?sici=0013-0427%28195611%292%3A23%3A92%3C296%3ASCOTPO%3E2.0.CO%3B2-C

• The (delayed) triumph of Malthus:
  • Real wages rise in the late-Plantagenet fourteenth century as the Bubonic Plague and other biomedical disasters raise the land-to-labor ratio.
  • Real wages fall steeply in the Tudor sixteenth century as domestic peace and the attentuation of plagues leads to a demographic boom and a lowering of the land-to-labor ratio.
  • In both cases, however, there are long and variable lags: half a century or so during which customary wage rates war with supply and demand.
  • And in the Tudor years, you also have the ongoing inflation of the "price revolution" driving changes.
• Nevertheless, it was not until 1880 that the purchasing power of English construction workers over "necessities" once again attained its Lancaster-dynasty medieval apogee.
  • But is this a good proxy for standard of living? In 1850 you couldn't buy as much beef and beer and bread as in 1470, but you could take the railroad to Brighton, buy penny-dreadfuls, and put lots of sugar in your tea...

Night Thoughts While Baking Oatcakes

Source: Jan de Vries lecture, 2/13/2008

Here we have a graph covering the period from the War of the Pragmatic Sanction to World War I, showing for six global cities the male day-laborer wage divided by the cost of 2000 cheap calories--rice in China, polenta in Milan, rye in Leipzig, and oats in Amsterdam and London. It suggests that in 1740 day laborers in Leipzig, Beijing, Suzhou, and Milan could barely keep body and soul together--if their work was not too strenuous, and if they did not have too many non-working dependents.

By contrast, male day laborers in London and Amsterdam appear to be living the life of Riley: only a quarter of their wages needed to be set aside for the basic caloric requirements, leaving the rest for dietary variety and fortification, clothing, shelter, dependents, entertainment, and so forth.

But this is if people in London ate oats. And people in London did not eat oats. Oats were for Scotsmen--and horses. Englishmen ate wheat bread. And calories from wheat-based bread were two to three times the cost of calories from oats.

So were workers in London in 1740 as miserably poor as workers in Milan, Leipzig, and Beijing, spending most if not all on their income on bare caloric maintenance in the form of the grain typical of their time and place? Or were the workers of London relatively rich--and deciding to spend their relative wealth on the superior taste and mouth feel of yeasty wheat bread rather than leaden oatcakes and on the associated symbolic declaration that they were proud and free Englishmen, not benighted barbarous Scots (or horses)?

The January Employment Report

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Good morning. I'm Brad DeLong, and this is my morning coffee.

Seasonally adjusted, only 46000 more people were at work in the fourth than in the third quarter of 2007. 17000 fewer people were working in January than in December. This morning's Employment Situation Summary is not good. Wage gains were low. The work week fell.

There are all the standard reasons to be very cautious in interpreting these data. Seasonal adjustment factors are always dicey. And this time the seasonal adjustment factors appear to be even more dicey than usual. But my tentative belief that the Federal Reserve perhaps went too far on Wednesday when it cut the Federal Funds rate to three-point-zero--that's now out the window. And I find myself shifting from the view that a short-run fiscal stimulus package will probably not be worth it--that we won't like what emerges from the Bush White House when the legislative process is concluded--to a view that a short-term fiscal stimulus is probably worth doing. The Senate, needless to say, appears to have its head much more screwed-on right than does the Republican and Blue Dog-dominated House, or the Bushies.

As Andrew Samwick says this morning, employment growth has averaged 66,000 over the last 4 months--and that is very weak growth in anybody's book. As Paul Krugman says, a better guide than focusing on this month's number is to look at the past several months and note that employment growth is well short of what is necessary to keep up with population growth. The unemployment rate is four-tenths of a percentage point higher than it was in the first half of last year.

Are we in a recession? I'm not confident one way or another, but Michael Carliner sees a personal income peak in September 2007, an industrial production peak in July, and a sales peak in October--he sees a duck.

I'm Brad DeLong, and this is my morning coffee.

William Gates and William Marshall

I have long wanted to write a paper comparing the careers of William Marshall in the twelfth century and William Gates in the twentieth, as a way of making points about the embedding of the economy in society and about the different channels into which entrepreneurship and enterprise are directed--what a young man on the make who wants to be seriously upwardly mobile does and where he goes in different eras.

Now I find myself sitting next to David Hult of the French Department, who may be the person here at Berkeley to talk to about L'Histoire de Guillaume le Maréchal...

From Wikipedia:

William Marshal, 1st Earl of Pembroke (1146 – 14 May 1219), also called William the Marshal (Guillaume le Maréchal), was an Anglo Norman soldier and statesman. He has been described as the "greatest knight that ever lived."... He served five kings — Henry the Young King, Henry II, Richard the Lionheart, John and Henry III — and rose from obscurity to become one of the most powerful men in Europe....

As a younger son of a minor nobleman, William had no lands or fortune to inherit, and had to make his own way in life... serve[d] in the household of William de Tancarville... then served in the household of his mother's brother, Patrick, Earl of Salisbury. In 1168 William's uncle was killed in an ambush by Guy of Lusignan. William was injured and captured... ransomed by Eleanor of Aquitaine... knighted in 1167... [made] a good living out of winning tournaments... by capturing and ransoming opponents.... By 1170 his stature had risen so far that he was appointed tutor in chivalry for Henry the Young King, son of Henry II of England.... William stood by Henry during the Revolt of 1173–1174, during which he knighted the Young King.... William Marshal was accused of undue familiarity with Marguerite of France... ask[ed] for trial by combat... but was refused... crusading in the Holy Land from 1183 to 1186... rejoined the court of King Henry II, and now served the father through the many rebellions of his remaining sons (Richard, Geoffrey, and John)... unhorsed the undutiful Richard in a skirmish. William could have killed the prince but killed his horse instead, to make that point clear....

In August 1189, when he was 43, King Richard arranged for him to marry the second-richest heiress in England, Isabel de Clare (1172-1240), the 17-year-old daughter of Strongbow. Her father had been Earl of Pembroke, and this title was granted to William.... The marriage transformed the landless knight from a minor family into one of the richest men in the kingdom... included in the council of regency which the King appointed on his departure for the Third Crusade in 1190....

William supported King John when he became king in 1199, but they had a falling out when William did homage to King Philip II of France for his Norman lands.... Despite these differences, it was William on June 15, 1215 at Runnymede who dealt with the barons who made King John agree to the Magna Carta, and he was one of the few English noblemen to remain loyal to the royal side through the First Barons' War. It was William whom King John trusted on his deathbed to make sure John's nine-year-old son Henry would get the throne... named by the king's council (the chief barons who had remained loyal to King John in the First Barons' War) to serve as both regent of the 9 year old King Henry III, and regent of the kingdom... prosecuted the war against Prince Louis and the rebel barons... battle of Lincoln.... Self-restraint and compromise were the key-notes of Marshal's policy... reissued Magna Carta....

Fulfilling the vow he had made while on crusade, he was invested into the order of the Knights Templar on his deathbed. He died on May 14, 1219 at Caversham, and was buried in the Temple Church in London.... After his death, his eldest son, also named William, commissioned a biography of his father to be written called L'Histoire de Guillaume le Marechal. This book, written so soon after his death, has preserved (and probably enhanced) the legend of William Marshal for posterity...

Union Density

Outsourced to Matthew Yglesias and Ezra Klein:

Matthew Yglesias: Union Share Rising: Some interesting news on the labor front as it seems that the proportion of the work force that belongs to a union went up last year for the first time since the BLS started tracking this stuff in the early 1980s -- from 12 percent of the workforce to 12.1 percent. Ezra Klein comments:

Manufacturing, amazingly, has been so decimated that your average manufacturing employee is less likely to be unionized than another American worker picked at random. Given that the manufacturing sector was once the backbone of the union economy, that's real testament to how ruined the old order is, and how impressive even these small gains are. Now, one year does not a trend make, and the uptick is unquestionably minor. But still: Gains for the first time in 25 years. And centered around the fast-growing, immigrant-heavy economies of the West.

The actual numbers involved here are, clearly, very small. But it's worth saying something about momentum. For a long time now, some heavily unionized sectors of the economy have been losing members. In more recent years, though, you've also seen quite a lot of vibrancy on the union front with a large amount of service-sector organizing. That, however, has tended to be masked by the continued decline of the manufacturing sector. What we seem to be seeing, however, is that the two lines are crossing -- manufacturing has declined so much already that continued declines no longer swamp gains in other sectors. If we have political change in 2009 that brings about labor law reform, pro-labor appointments to regulatory bodies and judgships, and perhaps even dares to use the bully-pulpit to make the case for union membership one can easily imagine seeing these trends continue.

Why Oh Why Can't We Have a Better Press Corps?

A message from the Communications Workers of America, about the Washington Post:

Background: The 400 production workers at the Washington Post have not seen a wage increase in five years. Five years.  For much of that time, since May 2003, the workers have been fighting for a fair labor contract.  But the Post has been holding things up.  And now the Post is after the workers’ employee-funded pension plan....

What Is The Main Issue Holding Up A Contract? Right now, the production workers have a national pension plan administered jointly by a board of employer and union trustees. But the Post is now demanding the right to withdraw from that plan, as well as requesting the unilateral right to decide what to do with the money in the plan. That money has been diverted from the workers pay raises over the last 30 years.  It belongs to the workers.  That’s right - the Post is asking to take pension money that has been coming out of its workers’ paychecks.

You might say, “But times are tough. Everybody's got to tighten their belt. Right?”

But times aren't tough for the Washington Post. In 2006, the company reported $324.5 million in profits, and Post executives rewarded themselves with millions in bonuses.  

Let's Review: $324.5 million in profits for the Post, millions in bonuses for Post executives, — and absolutely nothing for production workers.

No raises. No parity. No help on health care. No improved benefits. Is this the same Washington Post that claims to be a watchdog against corporate greed? We don't think so.

Can We Retire Bob Herbert?

Yes, it is yet another edition of why oh why can't we have a better press corps. This time it is Bob Herbert who should be retired and sent to doing something socially useful:

Recession? What Recession?: If it looks like a recession and feels like a recession.... “Quite frankly,” said Senator Charles Schumer, peering over his glasses at the Fed chairman, Ben Bernanke, “I think we are at a moment of economic crisis, stemming from four key areas: falling housing prices, lack of confidence in creditworthiness, the weak dollar and high oil prices.” He asked Mr. Bernanke, at a Congressional hearing Thursday, if we were headed toward a recession.

An aide handed the chairman his dancing shoes, and Mr. Bernanke executed a flawless version of the Washington waffle.... With all due respect to the chairman, he would see the recession that so many others are feeling if he would only open his eyes. While Mr. Bernanke and others are waiting for the official diagnosis (a decline in the gross domestic product for two successive quarters), the disease is spreading and has been spreading for some time...

This is simply wrong: We may fall into a recession in the near future--odds are 50-50. We might be in a recession right now--but probably not. We almost surely were not in a recession in July-September. Ben Bernanke won't say whether we are headed for a recession because he does not know.

Herbert goes on:

Bankruptcies and homelessness are on the rise. The job market has been weak for years. The auto industry is in trouble. The cost of food, gasoline and home heating oil are soaring at a time when millions of Americans are managing to make it from one month to another solely by the grace of their credit cards. The country has been in denial for years about the economic reality facing American families. That grim reality has been masked by the flimflammery of official statistics (job growth good, inflation low) and the muscular magic of the American way of debt: mortgages on top of mortgages, pyramiding student loans and an opiatelike addiction to credit cards at rates that used to get people locked up for loan-sharking...

This is at most one-quarter true. The job market has not been as strong as the unemployment rate suggests, but it has not been extraordinarily weak. Inflation has been low--in 2002, we were scared that it was going to go too low. The problem is not that middle America's incomes have been falling since 2000: the problem is that middle America's spending has been rising rapidly while incomes have not.

And then there is:

In an interview after the hearing, Representative Hinchey discussed the disconnect between official government reports and the reality facing working families.... [T]he most popular measure of inflation, the Consumer Price Index, does not include the cost of energy or food, “the two most significant aspects of the increased cost of living for the American people.”

Yes, it does.

How has the New York Times managed to pick Bob Herbert out of the 75 million liberal adults in America? It is a mystery.

How Large Are the Distributional Effects of Increased Trade?

Dani Rodrik suspects that they are smaller than Josh Bivens thinks they are:

Dani Rodrik's weblog: The pains from trade: The workhorse model of international trade (the 2x2 Heckscher-Ohlin model) has very stark implications for the effect of trade with poor, labor-abundant countries. Low-skilled workers in rich countries (read the U.S.) must end up as losers--not in relative terms, but in absolute terms.  Moreover, the larger the overall gains from trade, the bigger must this adverse distributional effect be.  In that world, it is inconsistent to claim there are large gains from globalization while downplaying the distributional impacts. Which is why many economists teach the model in their classrooms, but shift to other, more complicated models when they engage in the public debate about the effect of trade on wages.

A recent paper by Josh Bivens carries out a quantitative simulation of the basic 2x2 model which suggests that the increase in U.S. trade with the developing countries between 1995 and 2006 would have reduced labor earnings by 4 percent while increasing the payment for skills by 3 percent, for a 7% increase in the differential altogether.  This is an interesting exercise, to be compared to that undertaken by my colleague Robert Lawrence. The latter gives much less of a role to trade, in large part because it finds there is little reduction in real earnings once adjustments for productivity, prices and benefits are made. 

One clear difference between the two perspectives is the extent to which one thinks of trade with developing countries as competing directly with U.S. production.  Lawrence says that developing country exports hardly displace any domestic production anymore because much of that activity has already shut down.  So whatever adverse impact may have existed in the 1980s, the current situation is much more benign. (But of course, less impact on productive re-allocation means fewer overall gains from trade too!). In Bivens' world (and that of the standard 2x2 model), by contrast, head-to-head competition is critical in driving the distributional effects.

I am on Dani's side, only more so. Two additional points are important, I think:

1. For competition to be head-to-head, the two countries have to be making very similar goods with similar production processes. Hand-spinners in Pakistan don't compete with labor here in the United States but with the capital embodied in our large automated spinning mills.

2. What trade does to our distribution of income can be undone by normal domestic redistributionist policies. The right way to deal with the issue is to (a) maximize the third world's ability to take advantage of our demand to spur its own growth, and (b) use domestic redistribution here to compensate for any adverse distributional impact.

Econbrowser

If you are not reading Econobrowser, you should be; consistent extraordinarily high-quality thoughts from James Hamilton and Menzie Chinn. Most recently, from Jim Hamilton:

Econbrowser: Well then, would $100 a barrel worry you? A week ago I reviewed the reasons why $90-a-barrel oil by itself would not be enough to cause an economic recession. As oil prices charged up to $96 on Friday, a reporter asked me at what price I'd change my mind.

Last week I described recent research by Olivier Blanchard and Jordi Gali and Munechika Katayama, among others, that concludes that the U.S. economy today may be substantially less vulnerable to oil price increases than it appeared to be in the 1970s. I noted that one common basis for all such claims is the observation that the fraction of our income that is spent on energy purchases is significantly lower today than it was in the 1970s. But I also noted that this is due in large part to the decline in the relative price of energy between 1981 and 1997, and that recent price increases have been reversing that trend....

The U.S. consumed 20.7 million barrels of oil per day for the first six months of 2007, which would be 7.5 billion barrels over a year. If prices today were still at the 2004 average oil price of $40 a barrel but the quantity of oil used and nominal GDP were at their values so far in 2007, $40 oil would imply an annual expenditure of about $300 billion, which would be just a little over 2% of our current $14 trillion GDP. But so far in 2007, we've seen an average oil price of $68 a barrel, which means an expenditure of $500 billion, over 3.5% of GDP. The above graph extends these calculations into some hypotheticals-- What if the oil consumption and GDP stayed where they have been so far this year, but oil prices averaged $100 or $150 over the year? It turns out that a price of $150 a barrel would put us back up to an expenditure share as high as it's ever been historically. Consumers cannot continue to ignore oil price increases for much longer.

But even if we return to those historical expenditure shares, an oil price increase need not have the same potential to produce a recession as it may have had in the 1970s. I believe that a key reason that we saw economic recessions following the oil supply disruptions of 1956, 1973, 1978, 1980, and 1990 was that these events were associated with sudden changes in consumer spending on items such as domestically manufactured automobiles, and that these demand shifts were a key cause of the subsequent economic downturns. Even if we return to a point where we are spending as much on energy as we were in 1981, the domestic auto companies are not as important to the U.S. economy as they were then....

[T]he key question as to whether an oil price increase would push the economy into a recession remains the context of the price change. The oil price increases over the last few months were not associated with any actual disruption in petroleum supplies, and do not have the same potential to change consumer sentiment and spending patterns as dramatically as occurred in many of the earlier historical oil shocks. For this reason, even if oil does go above $100, my biggest concern remains the housing sector and financial problems.

But if the tanks start rolling or missiles start flying in the Middle East, my worry factor is going to soar along with the price of oil.

Angry Bear Reminds Us of Ben Bernanke's View

Ben Bernanke says: look at the employment-to-population ratio as well as the unemployment rate:

Angry Bear: Dean also notes that Ben Bernanke also gets it:

However, my sense is that, when one looks at the full range of information available, the labor market looks (if anything) weaker than a 6 percent unemployment rate suggests. For example, it appears that workers who have lost their jobs in the past couple of years have been more likely to withdraw from the labor force (rather than report themselves as unemployed) than were job losers in previous recessions. Indeed, the labor force participation rate fell sharply between 2000 and 2003, from a little over 67 percent to about 66-1/4 percent. Similarly, the ratio of employment to the working-age population, a statistic that reflects both those who become unemployed and those who leave the labor force, has fallen significantly, by 2.8 percentage points between its peak in April 2000 and its trough this past September. The tendency of recent job losers to leave the labor force likely masks some of the effects of job cuts on the unemployment rate, so that the current measured level of unemployment may understate the extent of job loss or the difficulty of finding new work. Of course, a labor market that is slack and improving only slowly is likely to produce continued slow growth in nominal wages, contributing to continued moderate growth in costs...

This means that the Bernanke-led Fed doesn't think the labor market is as tight as the consensus does.

An Historical Document: Free Soil, Free Labor, Free Men

Abraham Lincoln at the 1859 Wisconsin State Fair:

http://showcase.netins.net/web/creative/lincoln/speeches/fair.htm: A few men own capital; and that few avoid labor themselves, and with their capital, hire, or buy, another few to labor for them. A large majority belong to neither class -- neither work for others, nor have others working for them. Even in all our slave States, except South Carolina, a majority of the whole people of all colors, are neither slaves nor masters. In these Free States, a large majority are neither hirers or hired. Men, with their families -- wives, sons and daughters -- work for themselves, on their farms, in their houses and in their shops, taking the whole product to themselves, and asking no favors of capital on the one hand, nor of hirelings or slaves on the other. It is not forgotten that a considerable number of persons mingle their own labor with capital; that is, labor with their own hands, and also buy slaves or hire freemen to labor for them; but this is only a mixed, and not a distinct class. No principle stated is disturbed by the existence of this mixed class. Again, as has already been said, the opponents of the "mud-sill" theory insist that there is not, of necessity, any such thing as the free hired laborer being fixed to that condition for life. There is demonstration for saying this. Many independent men, in this assembly, doubtless a few years ago were hired laborers. And their case is almost if not quite the general rule.

The prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him. This, say its advocates, is free labor -- the just and generous, and prosperous system, which opens the way for all -- gives hope to all, and energy, and progress, and improvement of condition to all. If any continue through life in the condition of the hired laborer, it is not the fault of the system, but because of either a dependent nature which prefers it, or improvidence, folly, or singular misfortune. I have said this much about the elements of labor generally, as introductory to the consideration of a new phase which that element is in process of assuming. The old general rule was that educated people did not perform manual labor. They managed to eat their bread, leaving the toil of producing it to the uneducated. This was not an insupportable evil to the working bees, so long as the class of drones remained very small. But now, especially in these free States, nearly all are educated -- quite too nearly all, to leave the labor of the uneducated, in any wise adequate to the support of the whole. It follows from this that henceforth educated people must labor. Otherwise, education itself would become a positive and intolerable evil. No country can sustain, in idleness, more than a small per centage of its numbers. The great majority must labor at something productive. From these premises the problem springs, "How can labor and education be the most satisfactory combined?"

By the "mud-sill" theory it is assumed that labor and education are incompatible; and any practical combination of them impossible. According to that theory, a blind horse upon a tread-mill, is a perfect illustration of what a laborer should be -- all the better for being blind, that he could not tread out of place, or kick understandingly. According to that theory, the education of laborers, is not only useless, but pernicious, and dangerous. In fact, it is, in some sort, deemed a misfortune that laborers should have heads at all. Those same heads are regarded as explosive materials, only to be safely kept in damp places, as far as possible from that peculiar sort of fire which ignites them. A Yankee who could invent strong handed man without a head would receive the everlasting gratitude of the "mud-sill" advocates.

But Free Labor says "no!" Free Labor argues that, as the Author of man makes every individual with one head and one pair of hands, it was probably intended that heads and hands should cooperate as friends; and that that particular head, should direct and control that particular pair of hands. As each man has one mouth to be fed, and one pair of hands to furnish food, it was probably intended that that particular pair of hands should feed that particular mouth -- that each head is the natural guardian, director, and protector of the hands and mouth inseparably connected with it; and that being so, every head should be cultivated, and improved, by whatever will add to its capacity for performing its charge. In one word Free Labor insists on universal education...

A Better Column from Gail Collins of the New York Times...

She praises Chris Dodd while trashing Chris Matthews, John McCain, Richard Nixon, and Hilary Clinton:

None Dare Call It Child Care: Chris Matthews of MSNBC asked whether this country would ever get back to the days when a young guy could come out of high school, get an industrial job “and provide for a family with a middle-class income and his spouse wouldn’t have to work.” Given the fact that more than two-thirds of American mothers have been working outside the home since the 1980s, Matthews could just as easily have demanded to know when we’ll get back to using manual typewriters and rotary phones....

In a two-hour debate that focused on job-related issues, the Republican presidential candidates managed to mention the Smoot-Hawley tariff and trade relations with Peru but not a word about child care for America’s working parents. John McCain... focus[ed] on the fact that “50,000 Americans now make their living off eBay,” that the tax code is “eminently unfair” and that Congress wastes too much money studying of the DNA of Montana bears....

[C]hild car... was one of the very first issues to be swift-boated by social conservatives... vetoed by Richard Nixon... members were flooded with mail accusing them of being anti-family communists....

[I]t is absolutely nuts that it isn’t a topic of discussion — or even election-year pandering.... The only candidate who talks about child care all the time is Chris Dodd....

This is Hillary Clinton’s Women’s Week. On Tuesday... a grab-bag of Clintonian mini-ideas... expand family leave. Yesterday, she was... speaking out for a bill on child care workers that has little chance of passage and would make almost no difference.... Clinton... wasn’t prepared to get any closer to the problems of working parents than a plan to help them stay home from work...

Substantively, a good column. Rhetorically, it rubs me the wrong way. Senator Smoot had a silly-sounding name: that doesn't mean that international trade regulation is a silly issue. Peru is a mountainous country far away filled with poor, darkish-skinned people who don't speak English. That doesn't mean Peru is of small importance. Hillary Rodham Clinton would be a good president (albeit not as good as Dodd) for childcare issues--she belongs classified with the good guys like Chris Dodd rather than to be rhetorically lumped with the malefactors like Matthews, McCain, and Nixon.

A 700-word column doesn't make an argument. Instead, it makes three kinds of assertions:

1. It asserts the main point of the column--that we Americans should think more and do more about childcare issues.
2. It asserts that the world works in the way assumed by the background against which the main point is painted--that talking about Peru is stupid because Peru is of small importance, and that talking about international trade is silly because Smoot sounds silly.
3. It asserts that some people are good guys (Dodd) and other people are bad guys (pundits, Republicans, Hillary Rodham Clinton).

Point 1 is good, point 2 is bad, point 3 is mixed. Am I wrong to demand that people do better?

Why oh why can't we have a better press corps?

Right-Wing Message Discipline

McMegan writes:

Megan McArdle (October 16, 2007) - I take it all back: A conservative publication, which I will not name, just spiked a book review because I said that the Laffer Curve didn't apply at American levels of taxation, even while otherwise expressing my vast displeasure with the (liberal) economic notions of the book I was reviewing. This isn't me looking for an alternative explanation for the spiking of a bad review: the literary editor accepted it, edited it, and then three hours later told me it couldn't be published because it violated their editorial line on taxation.

I suppose I ought to have known, but I didn't. Go ahead liberals, pile on: you told me so...

McMegan won't name names. She regards herself as still under some form of right-wing message discipline. So we are left in ignorance as to which conservative publications (a) want to serve as platforms to present the views of smart (albeit conservative) people, and which (b) regard their primary mission as telling lies to advance the power interests of Republican politicians.

I'm going to assign all conservative publications to (b) in the absence of anything to the contrary. Anybody have any conservative publications they want to whitelist--to move from (b) to (a)?

Why oh why can't we have a better press corps?

---

UPDATE: McMegan concludes:

The Laffer Curve and the supply siders pushing it seem to be the teacher's unions of the right.

Funny how I have never heard of a liberal publication spiking a piece because it was insufficiently friendly to teachers' unions or trial lawyers or AARP. Don't I remember seeing a lot of things in liberal publications about how school systems are overbureaucratized, in large part because of the unions?

It is true that I have seen a lot of right-wing hyenas but haven't seen many liberals attack teachers for being overpaid and underworked. Liberals are more likely to take a line like this:

Pay Teachers More Money: Without improving the average quality of our teachers, there is little hope of improving the system... teacher quality has declined over time... ironically... [because of] reduced discrimination against women. Fifty years ago, talented, educated women had few options other than teaching, and the schools were filled with highly qualified and able teachers. Today, college-educated women have moved into other occupations....

This is no surprise. Teachers are not paid very well, and many talented potential teachers have other options.... Why are teachers so important? Since most education in this country takes place in classrooms where there are many children, disruption by one child imposes penalties on other children in the class. The evidence suggests that child behavior is very sensitive to teacher quality....

[S]chools are failing badly for some subgroups... education has been demonstrated conclusively to be very important both for a country's economic growth and for raising the wages of individual citizens. Each year of schooling is associated with about a 10 percent increase in subsequent annual earnings....

[T]he reality is that the public school system will be with us for years to come, and it is important to make that system stronger.... To improve our schools in the 21st century, it is first necessary to attract more high-quality teachers...

That's the liberal line--that teachers need more money. But that line is not just a liberal line. It is a reality-based line. The quote is from Eddie Lazear, Hoover Institution Senior Fellow and Chair of President Bush's Council of Economic Advisers. (Eddie is also strongly, strongly in favor of vouchers, educational competition, and parental voting-with-the-feet--things that liberals tend to be more skeptical of.)

Good News for Women and for the Well-Educated

Bad news for non-immigrant relatively uneducated men. (America still offers an amazing deal to immigrants.) David Wessel writes about the latest labor market research. The Journal really should put Wessel on page A1:

Why Job Market Is Sagging in the Middle: The salaries of Wall Street's financial engineers are surging while wages in industrial companies stagnate. Manufacturers complain about "skill shortages" while cutting payrolls. The number of health-care jobs soars 45% over 15 years, outstripping the 25% increase in other jobs. Computers seem to have infiltrated every job, yet demand for unskilled, low-wage immigrants doesn't abate....

For decades, employers in the U.S. and other industrialized countries sought more skilled workers as technology and the availability of low-wage workers abroad diminished the employers' appetite for lesser-skilled workers at home. It was painful, but simple: Employers of all sorts wanted more skills and more education, and paid more to get them....

There is still strong demand for high-end workers -- the stars of finance, software, law, sports and entertainment -- as well as for the highest-skilled factory workers. The only news is the intensity of that demand, which is pushing up pay for those at the top.

-- and here's the switch -- demand is increasing for some workers at the low end of the pay scale: the ones who wipe brows in hospitals, care for kids, clear tables at bistros and stand guard in office-building lobbies. In 1980, about 13% of workers without any college education were working in such personal-service jobs, according to David Autor.... In 2005, 20% of them were.

The losers? "The sagging middle," says Princeton University economist Alan Krueger.... Lawrence Katz and Claudia Goldin... "U.S. employment has been polarizing into high-wage and low-wage jobs at the expense of traditional middle-class jobs."... Technology and globalization are boosting demand for the most-educated.... Top hedge-fund managers aren't being replaced by computers; they're harnessing them.... [T]echnology and globalization are eroding demand for workers who do routine tasks in factories and offices, many of whom are high-school or even college grads. The voice-mail system does away with switchboard operators; back-office software eliminates bookkeepers; robots replace assembly-line workers.... But technology and globalization are not eroding demand for personal-service workers... [which] have to be delivered here in the U.S. -- and in person -- either by natives or by immigrants....

Autor and colleague David Dorn examined places that were particularly heavy with easy-to-automate or easy-to-outsource jobs in 1980. By 2005, they discovered, wage inequality in those communities had widened more than elsewhere.... [W]hat, if anything, should the U.S. do about this? That's a harder question.... [S]horing up the middle by... meddling with the market would cost consumers heavily. Some, certainly not all, suggest letting the market be, and using the tax code to transfer money.... Others suggest "professionalizing" personal-service jobs, perhaps encouraging unionization, to boost wages. Unlike factory jobs, advocates reason, these jobs can't be moved offshore or automated if employers have to pay more.

The more popular solution -- at least among economists -- is a familiar one: Educate all workers so they are better at interpersonal or abstract skills... as opposed to dial-turning or keyboard-pounding...

This does call for more redistribution through the tax system: that is why the Star-Maker made progressive income tax systems on the Fourth Day, after all. I don't understand how any professional economist can disagree with the fact that more technology-driven inequality should call forth more social insurance in response.