Americans are feeling better about the economic situation these days. That's good news.
However, Americans are saving little if any money for a rainy day, let alone providing adequately for our oldster years. That's bad news for future generations of Americans.
Americans Feeling Better About Household Finances summarizes the Federal Reserve's key findings:
"Americans are feeling better about their household finances but many remain on shaky ground when it comes to saving for emergency expenses and retirement, according to a Federal Reserve survey.
A total of 65% of respondents in the Fed’s 2014 Survey of Household Economics and Decisionmaking said they were “living comfortably” or “doing okay,” up from 62% in the 2013 survey, the central bank said Wednesday. Some 29% in 2014 said they expected their income to be higher in the next year, up from 21% a year earlier.
Some 29% in last year’s survey said they were better off financially than they were a year earlier, compared with 21% who said they were worse off. A total of 40% said they were better off than they were five years ago, versus 28% who said they were worse off compared with 2009.
But for many Americans, household finances remain fragile: 47% said they wouldn’t be able to cover a $400 emergency expense or would have to borrow money or sell something, and 31% said they went without some form of medical care in the last year because they couldn’t afford it.
One in five said their spending exceeded their income over the last year, just 63% said they saved any money at all over the past 12 months and 31% of nonretirees said they had no retirement savings or pension.
“The survey results reveal a lack of economic preparedness among many adults,” the Fed said in a news release."
Summing Up
I would say Amen to the 'lack of economic preparedness among many adults' comment by the Fed.
We like to think of ourselves as independent individuals and not government dependent debtors.
Looking at the reality of the situation, however, most of us are merely talking the talk and not making enough of an effort to walk the walk.
By not saving and investing properly for the long haul, we're only burdening the future generations by not taking care of our own 'future business' during the working years.
That's my take.
Thanks. Bob.
Wednesday, May 27, 2015
Who's Qualified For The Jobs Of The Future
By Keenan Mann
Much has been written about the effect of globalization on jobs and wages in response to the recently renewed calls for a dramatic increase in the minimum wage. The explanation for the current "low wage levels" is one that is covered very early in most Economics 101 text books: capital tends to flow to where it is used most efficiently. What that means in practical terms is if I run a business and I need to purchase labor, all other things being equal (or even close to equal), I will buy that labor from the most inexpensive supplier of it, even if I have to cross an ocean to get to that supplier. That's the story of manufacturing here in the US. That's the story of fast food workers (without the ocean crossing), and on and on.
So the solution for an individual in a low wage job is not to have his Congressman work to get minimum wage laws passed in his favor, it is to acquire skills that will command a higher wage for him on the open market. Those pictured below seem to have figured that out. Take a look and read the caption:
Did you notice anything peculiar? I did.
It has been said that a picture is worth a thousand words. In this case, that might be a lowball estimate.
KM
Did you notice anything peculiar? I did.
It has been said that a picture is worth a thousand words. In this case, that might be a lowball estimate.
KM
Tuesday, May 26, 2015
Education: The Problem And The Solution
By Keenan Mann
Here are a few statistics on educational achievement (the lack thereof actually) that may not surprise you, but are nonetheless discouraging:
And finally, add to those numbers this bit of information about who occupies the nation's prisons and jails:
The majority of the 2.3 million people incarcerated in U.S. prisons and jails are people of
color, people with mental health issues and drug addiction, people with low levels of
educational attainment, and people with a history of unemployment or underemployment.
The numbers above are appalling and should be cause for national (not race based) outrage and actions like the kind that seems to occur every time a young black male gets shot and killed by a police officer (normally a white one, but any color will do). Those incidents spawn weeks long protests, bring out the who's who of race relations, and also give birth to slogans that are meant to capture the essence of the unrest. Two that come to mind from recent events are, "I Can't Breathe", which became a momentary t-shirt craze and the "Black Lives Matter" slogan that has gotten at least a few public figures, who dared claim that all lives matter, in hot water.
Oh and on the police killings, I have another data point. The Bureau of Justice Statistics estimates that there are 1240 justifiable homicides each year. The estimate assumes that non-reporting agencies have the same homicide rate as reporting agencies. That's definitely a big number, justifiable or not. But when you consider the fact that there are a combined 50 million kids attending public primary and secondary schools in conjunction with the education statistics cited earlier, a shift in priorities might seem in order.
To be clear, let me say that I'm not at all minimizing the significance of anyone being killed by anyone else, police officer or not, but if the same kind of sustained outrage was directed towards getting better educational outcomes, there might be a whole lot less outrage at police shootings because there might be fewer of them.
Again, there's rage over dead black kids and men at the hands of police officers, but where's the rage over the figurative walking dead that bad schools are pumping out in the form of the poorly educated? In large numbers, these poorly educated will either drop out, or remain stuck on the lower economic rungs of society, or end up in jail, or end up dead (prematurely) at the hands of police or members of their own communities. So let's get organized and get after the big problems that are perpetuated by the defenders of the status quo within the educational system. That means groups like inflexible school boards and teacher's unions.
In the area of slogans, we don't have to start from scratch. There are many in existence that we can adapt to our own purposes. To that end, in the "Black Lives Matter" slogan, let's also dare to change "Black" to "All". And let's get a t-shirt out there that speaks to seriousness of our cause. I like this one and I bet it'll get their attention:
Here are a few statistics on educational achievement (the lack thereof actually) that may not surprise you, but are nonetheless discouraging:
- 54% of African Americans graduate from high school, compared to more than three quarters of white
- and Asian students.
- Nationally, African American male students in grades K-12 were nearly 2½ times as likely to be suspended from school in 2000 as white students.
- On average, African American twelfth-grade students read at the same level as white
- eighth-grade students.
- The twelfth-grade reading scores of African American males were significantly lower than
- those for men and women across every other racial and ethnic group.
- Only 14% of African American eighth graders score at or above the proficient level. These results reveal that millions of young people cannot understand or evaluate text, provide relevant details, or support inferences about the written documents they read.
Now add to those educations statistics a few about unemployment. (Note the numbers are little dated, but the ratios still hold):
- The unemployment rate for White Americans is 5.7% while the unemployment rate for African Americans is 12.2%.
- Overall workers from age 16 to 19 have an unemployment rate of 20.7%.
- White workers in the same age cohort have an unemployment rate of 17.5%.
- Blacks in that cohort have an unemployment rate of 38%.
And finally, add to those numbers this bit of information about who occupies the nation's prisons and jails:
The majority of the 2.3 million people incarcerated in U.S. prisons and jails are people of
color, people with mental health issues and drug addiction, people with low levels of
educational attainment, and people with a history of unemployment or underemployment.
The numbers above are appalling and should be cause for national (not race based) outrage and actions like the kind that seems to occur every time a young black male gets shot and killed by a police officer (normally a white one, but any color will do). Those incidents spawn weeks long protests, bring out the who's who of race relations, and also give birth to slogans that are meant to capture the essence of the unrest. Two that come to mind from recent events are, "I Can't Breathe", which became a momentary t-shirt craze and the "Black Lives Matter" slogan that has gotten at least a few public figures, who dared claim that all lives matter, in hot water.Oh and on the police killings, I have another data point. The Bureau of Justice Statistics estimates that there are 1240 justifiable homicides each year. The estimate assumes that non-reporting agencies have the same homicide rate as reporting agencies. That's definitely a big number, justifiable or not. But when you consider the fact that there are a combined 50 million kids attending public primary and secondary schools in conjunction with the education statistics cited earlier, a shift in priorities might seem in order.
To be clear, let me say that I'm not at all minimizing the significance of anyone being killed by anyone else, police officer or not, but if the same kind of sustained outrage was directed towards getting better educational outcomes, there might be a whole lot less outrage at police shootings because there might be fewer of them.
Again, there's rage over dead black kids and men at the hands of police officers, but where's the rage over the figurative walking dead that bad schools are pumping out in the form of the poorly educated? In large numbers, these poorly educated will either drop out, or remain stuck on the lower economic rungs of society, or end up in jail, or end up dead (prematurely) at the hands of police or members of their own communities. So let's get organized and get after the big problems that are perpetuated by the defenders of the status quo within the educational system. That means groups like inflexible school boards and teacher's unions.
In the area of slogans, we don't have to start from scratch. There are many in existence that we can adapt to our own purposes. To that end, in the "Black Lives Matter" slogan, let's also dare to change "Black" to "All". And let's get a t-shirt out there that speaks to seriousness of our cause. I like this one and I bet it'll get their attention:
Who's with me?
KM
Monday, May 25, 2015
A Memorial Day Reflection on the Martin Treptow Mindset
By Keenan Mann
In observation of memorial day, I've included two videos below. Both are worth the few minutes it will take to watch them. The first is an abridged and revved up version of a speech by Ronald Reagan that I mentioned in a post last October:
And the second is from Reagan's first inaugural address. If you haven't ever heard of Martin Treptow, you'll be impressed by the brief story told about him. I know for me at least, Memorial Day has an added significance after hearing his story and I will certainly be sharing it with others.
Happy Memorial Day.
KM
In observation of memorial day, I've included two videos below. Both are worth the few minutes it will take to watch them. The first is an abridged and revved up version of a speech by Ronald Reagan that I mentioned in a post last October:
And the second is from Reagan's first inaugural address. If you haven't ever heard of Martin Treptow, you'll be impressed by the brief story told about him. I know for me at least, Memorial Day has an added significance after hearing his story and I will certainly be sharing it with others.
Happy Memorial Day.
KM
Sunday, May 24, 2015
Is Education In The United States Really As Bad As We Think?
By Keenan Mann
I attended my niece's graduation from high school today. I can hardly believe it. It doesn't seem like that long ago that I watched her mother and grandmother put her in a backward facing car seat. Today, Jada drove her mother and grandmother to the graduation ceremony.
Most ceremonies follow a familiar script. This one was no different. It went something like this:
Opening Scene: The graduates marched in to the "Pomp and Circumstance" theme song.
Rising Action: A few students addressed the audience, followed by the Valedictory speech.
Climax: School officials took turns reading off the list of graduating seniors one by one.
Falling Action/Resolution: The graduates marched out again to "Pomp and Circumstance".
I should stipulate that while it followed the script, ceremony wasn't as painful as it might sound. I actually couldn't have been more impressed with all of the student speakers. But I will admit, I was dreading the name call out portion of the program. Why? Because there were 412 graduates!
The ceremony was held in a very large church. We sat in the last row and occupied the four spots closest to the aisle (and a door). I had every intention of making my escape once her name was called, but my wife was having none of it. So I sat and watched and listened as parents and friends exploded in excitement, blurting out nicknames and cheers as their loved ones' names were called.
But in all my watching I also noticed a man, sitting in the same spot, one row in front of me. I started paying attention to him. I'm not sure why. Then a name got called, and I noticed him give just the slightest fist pump. It wasn't a gesture done for the entertainment of the crowd, like so many others, and it obviously wasn't meant for the graduate to see. It was just for him it seemed. I figured he was related to the kid whose name was just called in some way. I don't recall the first name , but I'm pretty sure the last name was Foster. Then, a few names later, another subtle fist pump, then another, and after a few more names another. It went on like that until the entire roster had been read aloud. I was intrigued.
So during the recessional, with "Pomp and Circumstance" once again playing in the background, I tapped him on the shoulder and asked him how he knew so many of the kids. He said, "Oh, I'm a math teacher here. I teach real world mathematics, which includes things like personal finance". It all made sense. Then he added, "I counted one hundred and fifty kids that I've taught up there today!" The sense of pride was evident in his broad smile and, in hindsight, in the very subtle yet emphatic celebratory gesture he performed with each familiar name called.
He made such an impression on me that I asked for his phone number and gave him mine with the idea that a future collaboration would be both fun and beneficial. I also concluded (once again) that there are lots of good teachers out there and that educators are probably not the biggest problem with education. That thought lead to my recollection of the following quote by the famous statistician and quality guru, W. Edwards Deming:
"A bad system will beat a good person every time"
And that quote lead me me on a bit of a quest for some perspective on the notion of the system as the real problem. It was during that research session that I came across some statics on education in the US that startled me in a good way.
The data is from PISA (Program for International Student Assessment) which tested around 510,000 15 and 16 year olds from OECD (the Organization for Economic Cooperation and Development) countries. The top level summary data isn't surprising. WIth the stipulation that a higher score is better than a lower one, the US average score was 500 while the average OECD score was 493. Of the 34 OECD countries, the US ranked 17 overall. Again, this isn't new stuff.
But this next data set is, at least to me. You'll find it below. It's from some research done by the National Association of Secondary School Principals (NASSP). They concluded that:
"A closer look at the data tells a different story. Most notable is the relationship between PISA scores in terms of individual American schools and poverty. While the overall PISA rankings ignore such differences in the tested schools, when groupings based on the rate of free and reduced lunch are created, a direct relationship is established."
The statistics are powerful, but the author's assertion that the system is not the problem may be a bit off the mark, at least the way W.E.B Dubois defines it below:
"Education is that whole system of human training, within and without of the schoolhouse walls, which molds and develops men."
Poverty does and always will exist. The US education system, if it is to improve the results of the most economically disadvantaged among us, will have to work at finding solutions that address the "whole" cited above. In other words, it has to be willing to help find solutions or at least experiment with ideas proposed by outsiders which might lead to better results for poor kids. I suspect those solutions are not incremental and traditional but rather sea change and radical and I hope we can soon muster the courage to begin the improvement process in earnest.
KM
I attended my niece's graduation from high school today. I can hardly believe it. It doesn't seem like that long ago that I watched her mother and grandmother put her in a backward facing car seat. Today, Jada drove her mother and grandmother to the graduation ceremony.
Most ceremonies follow a familiar script. This one was no different. It went something like this:
Opening Scene: The graduates marched in to the "Pomp and Circumstance" theme song.
Rising Action: A few students addressed the audience, followed by the Valedictory speech.
Climax: School officials took turns reading off the list of graduating seniors one by one.
Falling Action/Resolution: The graduates marched out again to "Pomp and Circumstance".
I should stipulate that while it followed the script, ceremony wasn't as painful as it might sound. I actually couldn't have been more impressed with all of the student speakers. But I will admit, I was dreading the name call out portion of the program. Why? Because there were 412 graduates!
The ceremony was held in a very large church. We sat in the last row and occupied the four spots closest to the aisle (and a door). I had every intention of making my escape once her name was called, but my wife was having none of it. So I sat and watched and listened as parents and friends exploded in excitement, blurting out nicknames and cheers as their loved ones' names were called.
But in all my watching I also noticed a man, sitting in the same spot, one row in front of me. I started paying attention to him. I'm not sure why. Then a name got called, and I noticed him give just the slightest fist pump. It wasn't a gesture done for the entertainment of the crowd, like so many others, and it obviously wasn't meant for the graduate to see. It was just for him it seemed. I figured he was related to the kid whose name was just called in some way. I don't recall the first name , but I'm pretty sure the last name was Foster. Then, a few names later, another subtle fist pump, then another, and after a few more names another. It went on like that until the entire roster had been read aloud. I was intrigued.
So during the recessional, with "Pomp and Circumstance" once again playing in the background, I tapped him on the shoulder and asked him how he knew so many of the kids. He said, "Oh, I'm a math teacher here. I teach real world mathematics, which includes things like personal finance". It all made sense. Then he added, "I counted one hundred and fifty kids that I've taught up there today!" The sense of pride was evident in his broad smile and, in hindsight, in the very subtle yet emphatic celebratory gesture he performed with each familiar name called.
He made such an impression on me that I asked for his phone number and gave him mine with the idea that a future collaboration would be both fun and beneficial. I also concluded (once again) that there are lots of good teachers out there and that educators are probably not the biggest problem with education. That thought lead to my recollection of the following quote by the famous statistician and quality guru, W. Edwards Deming:
"A bad system will beat a good person every time"
And that quote lead me me on a bit of a quest for some perspective on the notion of the system as the real problem. It was during that research session that I came across some statics on education in the US that startled me in a good way.
The data is from PISA (Program for International Student Assessment) which tested around 510,000 15 and 16 year olds from OECD (the Organization for Economic Cooperation and Development) countries. The top level summary data isn't surprising. WIth the stipulation that a higher score is better than a lower one, the US average score was 500 while the average OECD score was 493. Of the 34 OECD countries, the US ranked 17 overall. Again, this isn't new stuff.
But this next data set is, at least to me. You'll find it below. It's from some research done by the National Association of Secondary School Principals (NASSP). They concluded that:
"A closer look at the data tells a different story. Most notable is the relationship between PISA scores in terms of individual American schools and poverty. While the overall PISA rankings ignore such differences in the tested schools, when groupings based on the rate of free and reduced lunch are created, a direct relationship is established."
| Free and Reduced Meal Rate | PISA Score |
| Schools with < 10% | 551 |
| Schools with 10-24.9% | 527 |
| Schools with 25-49.9% | 502 |
| Schools with 49.9-74.9% | 471 |
| Schools with >75% | 446 |
| U.S. average | 500 |
| OECD average | 493 |
With strong evidence that increased poverty results in lower PISA scores the next question to be asked is what are the poverty rates of the countries being tested? (Listed below are the countries that were tested by PISA along with available poverty rates. Some nations like Korea do not report poverty rates.)
| Country | Poverty Rate | PISA Score |
| Denmark | 2.4% | 495 |
| Finland | 3.4% | 536 |
| Norway | 3.6% | 503 |
| Belgium | 6.7% | 506 |
| Switzerland | 6.8% | 501 |
| Czech Republic | 7.2% | 478 |
| France | 7.3% | 496 |
| Netherlands | 9.0% | 508 |
| Germany | 10.9% | 497 |
| Australia | 11.6% | 515 |
| Greece | 12.4% | 483 |
| Hungary | 13.1% | 494 |
| Austria | 13.3% | 471 |
| Canada | 13.6% | 524 |
| Japan | 14.3% | 520 |
| Poland | 14.5% | 500 |
| Portugal | 15.6% | 489 |
| Ireland | 15.7% | 496 |
| Italy | 15.7% | 486 |
| United Kingdom | 16.2% | 494 |
| New Zealand | 16.3% | 521 |
| United States | 21.7% | 500 |
Leveling the playing field
A more accurate assessment of the performance of U.S. students would be obtained by comparing the scores of American schools with comparable poverty rates to those of other countries.
Schools in the United States with less than a 10% poverty rate had a PISA score of 551. When compared to the ten countries with similar poverty numbers, that score ranked first.
| Country | Poverty Rate | PISA Score |
| United States | <10% | 551 |
| Finland | 3.4% | 536 |
| Netherlands | 9.0% | 508 |
| Belgium | 6.7% | 506 |
| Norway | 3.6% | 503 |
| Switzerland | 6.8% | 501 |
| France | 7.3% | 496 |
| Denmark | 2.4% | 495 |
| Czech Republic | 7.2% | 478 |
In the next category (10-24.9%) the U.S. average of 527 placed first out of the ten comparable nations.
| Country | Poverty Rate | PISA Score |
| United States | 10%-24.9% | 527 |
| Canada | 13.6% | 524 |
| New Zealand | 16.3% | 521 |
| Japan | 14.3% | 520 |
| Australia | 11.6% | 515 |
| Poland | 14.5% | 500 |
| Germany | 10.9% | 497 |
| Ireland | 15.7% | 496 |
| Hungary | 13.1% | 494 |
| United Kingdom | 16.2% | 494 |
| Portugal | 15.6% | 489 |
| Italy | 15.7% | 486 |
| Greece | 12.4% | 483 |
| Austria | 13.3% | 471 |
For the remaining U.S. schools, their poverty rates over 25% far exceed any other country tested. However, when the U.S. average of 502 for poverty rates between 25-49.9% is compared with other countries it is still in the upper half of the scores.
Mathematically Speaking
The results of the latest PISA testing should raise serious concerns. However, the overall ranking of 14th in reading is not the reason to be concerned. The problem is not as much with our educational system as it is with our high poverty rates. The real crisis is the level of poverty in too many of our schools and the relationship between poverty and student achievement. Our lowest achieving schools are the most under-resourced schools with the highest number of disadvantaged students. We cannot treat these schools in the same way that we would schools in more advantaged neighborhoods or we will continue to get the same results. The PISA results point out that the U.S. is not alone in facing the challenge of raising the performance of disadvantaged students.
| U.S. % Poverty | Other Countries | PISA Score |
| U.S. (<10%) | 551 | |
| Korea | 539 | |
| Finland | 536 | |
| U.S. (10-24.9%) | 527 | |
| Canada | 524 | |
| New Zealand | 521 | |
| Japan | 520 | |
| Australia | 515 | |
| Netherlands | 508 | |
| Belgium | 506 | |
| Norway | 503 | |
| U.S. (25-49.9%) | 502 | |
| Estonia | 501 | |
| Switzerland | 501 | |
| Poland | 500 | |
| Iceland | 500 | |
| U.S. (Average) | 500 | |
| Sweden | 497 | |
| Germany | 497 | |
| Ireland | 496 | |
| France | 496 | |
| Denmark | 495 | |
| United Kingdom | 494 | |
| Hungary | 494 | |
| Portugal | 489 | |
| Italy | 486 | |
| Slovenia | 483 | |
| Greece | 483 | |
| Spain | 481 | |
| Czech Republic | 478 | |
| Slovak Republic | 477 | |
| Israel | 474 | |
| Luxembourg | 472 | |
| U.S. (50-74.9%) | 471 | |
| Austria | 471 | |
| Turkey | 464 | |
| Chile | 449 | |
| U.S. (over 75%) | 446 | |
The statistics are powerful, but the author's assertion that the system is not the problem may be a bit off the mark, at least the way W.E.B Dubois defines it below:
"Education is that whole system of human training, within and without of the schoolhouse walls, which molds and develops men."
Poverty does and always will exist. The US education system, if it is to improve the results of the most economically disadvantaged among us, will have to work at finding solutions that address the "whole" cited above. In other words, it has to be willing to help find solutions or at least experiment with ideas proposed by outsiders which might lead to better results for poor kids. I suspect those solutions are not incremental and traditional but rather sea change and radical and I hope we can soon muster the courage to begin the improvement process in earnest.
KM
Saturday, May 23, 2015
Warren Buffet Weighs In On Minimum Wage Debate
By Keenan Mann
In a piece for the Wall Street Journal titled, "Better Than Raising The Minimum Wage", Warren Buffet, the chairman of Berkshire Hathaway, makes a well reasoned case for not distorting the labor market while still providing assistance to those in need. In making his case, Mr. Buffett doesn't cast aspersions on the rich for being rich nor does he berate the poor for simply not working hard enough. He also dismisses the idea that getting an education is a panacea. His solution, though he doesn't call it that, is wealth redistribution. But it's not as cringeworthy as it may sound. See the full article below:
"The American Dream promises that a combination of education, hard work and good behavior can move any citizen from humble beginnings to at least reasonable success. And for many, that promise has been fulfilled. At the extreme, we have the Forbes 400, most of whom did not come from privileged backgrounds.
Instead, this widening gap is an inevitable consequence of an advanced market-based economy. Think back to the agrarian America of only 200 years ago. Most jobs could then be ably performed by most people. In a world where only primitive machinery and animals were available to aid farmers, the difference in productivity between the most talented among them and those with ordinary skills was modest.
Many other jobs of that time could also be carried out by almost any willing worker. True, some laborers would outdo others in intelligence or hustle, but the market value of their output would not differ much from that of the less talented.
Visualize an overlay graphic that positioned the job requirements of that day atop the skills of the early American labor force. Those two elements of employment would have lined up reasonably well. Not today. A comparable overlay would leave much of the labor force unmatched to the universe of attractive jobs.
That mismatch is neither the fault of the market system nor the fault of the disadvantaged individuals. It is simply a consequence of an economic engine that constantly requires more high-order talents while reducing the need for commodity-like tasks.
To see why that is true, imagine we lived in a sports-based economy. In such a marketplace, I would be a flop. You could supply me with the world’s best instruction, and I could endlessly strive to improve my skills. But, alas, on the gridiron or basketball court I would never command even a minimum wage. The brutal truth is that an advanced economic system, whether it be geared to physical or mental skills, will leave a great many people behind.
That second goal crumbles in the face of any plan to sizably increase the minimum wage. I may wish to have all jobs pay at least $15 an hour. But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty.
The better answer is a major and carefully crafted expansion of the Earned Income Tax Credit (EITC), which currently goes to millions of low-income workers. Payments to eligible workers diminish as their earnings increase. But there is no disincentive effect: A gain in wages always produces a gain in overall income. The process is simple: You file a tax return, and the government sends you a check.
In essence, the EITC rewards work and provides an incentive for workers to improve their skills. Equally important, it does not distort market forces, thereby maximizing employment.
There is no perfect system, and some people, of course, are unable or unwilling to work. But the goal of the EITC—a livable income for everyone who works—is both appropriate and achievable for a great and prosperous nation. Let’s replace the American Nightmare with an American Promise: America will deliver a decent life for anyone willing to work."
The EITC is redistribution pure and simple, so it's not perfect. But it's better than forcing private citizens/companies to bear that burden, thereby putting the ongoing viability of their enterprises at risk. Of course, nobody calls minimum wages laws wealth redistribution, but that's exactly what they are - government mandated, privately supported redistribution programs. And they've largely been a failure. That's because, as UC-Irvine Economics professor David Neumark put it recently in an article for the LA TImes, "data indicate that minimum wages are ineffective at delivering benefits to poor or low-income families, and that many of the benefits flow to higher-income families. That's because minimum wages target low wages rather than low family incomes. And many minimum-wage workers are not poor or even in low-income families; nearly a quarter are teenagers who will eventually find better-paid jobs. Moreover, most poor families have no workers at all. As a result, for every $5 in higher wages that a higher minimum imposes on employers, only about $1 goes to poor families, whereas roughly twice as much goes to families with incomes above the median."
Ideally, we wouldn't need to redistribute income. But since we apparently do, let's call it what it is and get on with it rather than politicizing the issue and making villains out of entrepreneurs.
KM
In a piece for the Wall Street Journal titled, "Better Than Raising The Minimum Wage", Warren Buffet, the chairman of Berkshire Hathaway, makes a well reasoned case for not distorting the labor market while still providing assistance to those in need. In making his case, Mr. Buffett doesn't cast aspersions on the rich for being rich nor does he berate the poor for simply not working hard enough. He also dismisses the idea that getting an education is a panacea. His solution, though he doesn't call it that, is wealth redistribution. But it's not as cringeworthy as it may sound. See the full article below:
"The American Dream promises that a combination of education, hard work and good behavior can move any citizen from humble beginnings to at least reasonable success. And for many, that promise has been fulfilled. At the extreme, we have the Forbes 400, most of whom did not come from privileged backgrounds.
Recently, however, the economic rewards flowing to people with specialized talents have grown dramatically faster than those going to equally decent men and women possessing more commonplace skills. In 1982, the first year the Forbes 400 was compiled, those listed had a combined net worth of $93 billion. Today, the 400 possess $2.3 trillion, up 2,400% in slightly more than three decades, a period in which the median household income rose only about 180%.
Meanwhile, a huge number of their fellow citizens have been living the American Nightmare—behaving well and working hard but barely getting by. In 1982, 15% of Americans were living below the poverty level; in 2013 the proportion was nearly the same, a dismaying 14.5%. In recent decades, our country’s rising tide has not lifted the boats of the poor.
No conspiracy lies behind this depressing fact: The poor are most definitely not poor because the rich are rich. Nor are the rich undeserving. Most of them have contributed brilliant innovations or managerial expertise to America’s well-being. We all live far better because of Henry Ford, Steve Jobs, Sam Walton and the like.
Instead, this widening gap is an inevitable consequence of an advanced market-based economy. Think back to the agrarian America of only 200 years ago. Most jobs could then be ably performed by most people. In a world where only primitive machinery and animals were available to aid farmers, the difference in productivity between the most talented among them and those with ordinary skills was modest.
Many other jobs of that time could also be carried out by almost any willing worker. True, some laborers would outdo others in intelligence or hustle, but the market value of their output would not differ much from that of the less talented.
Visualize an overlay graphic that positioned the job requirements of that day atop the skills of the early American labor force. Those two elements of employment would have lined up reasonably well. Not today. A comparable overlay would leave much of the labor force unmatched to the universe of attractive jobs.
That mismatch is neither the fault of the market system nor the fault of the disadvantaged individuals. It is simply a consequence of an economic engine that constantly requires more high-order talents while reducing the need for commodity-like tasks.
The remedy usually proposed for this mismatch is education. Indeed, a top-notch school system available to all is hugely important. But even with the finest educational system in the world, a significant portion of the population will continue, in a nation of great abundance, to earn no more than a bare subsistence.
To see why that is true, imagine we lived in a sports-based economy. In such a marketplace, I would be a flop. You could supply me with the world’s best instruction, and I could endlessly strive to improve my skills. But, alas, on the gridiron or basketball court I would never command even a minimum wage. The brutal truth is that an advanced economic system, whether it be geared to physical or mental skills, will leave a great many people behind.
In my mind, the country’s economic policies should have two main objectives. First, we should wish, in our rich society, for every person who is willing to work to receive income that will provide him or her a decent lifestyle. Second, any plan to do that should not distort our market system, the key element required for growth and prosperity.
That second goal crumbles in the face of any plan to sizably increase the minimum wage. I may wish to have all jobs pay at least $15 an hour. But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty.
The better answer is a major and carefully crafted expansion of the Earned Income Tax Credit (EITC), which currently goes to millions of low-income workers. Payments to eligible workers diminish as their earnings increase. But there is no disincentive effect: A gain in wages always produces a gain in overall income. The process is simple: You file a tax return, and the government sends you a check.
In essence, the EITC rewards work and provides an incentive for workers to improve their skills. Equally important, it does not distort market forces, thereby maximizing employment.
The existing EITC needs much improvement. Fraud is a big problem; penalties for it should be stiffened. There should be widespread publicity that workers can receive free and convenient filing help. An annual payment is now the rule; monthly installments would make more sense, since they would discourage people from taking out loans while waiting for their refunds to come through. Dollar amounts should be increased, particularly for those earning the least.
There is no perfect system, and some people, of course, are unable or unwilling to work. But the goal of the EITC—a livable income for everyone who works—is both appropriate and achievable for a great and prosperous nation. Let’s replace the American Nightmare with an American Promise: America will deliver a decent life for anyone willing to work."
The EITC is redistribution pure and simple, so it's not perfect. But it's better than forcing private citizens/companies to bear that burden, thereby putting the ongoing viability of their enterprises at risk. Of course, nobody calls minimum wages laws wealth redistribution, but that's exactly what they are - government mandated, privately supported redistribution programs. And they've largely been a failure. That's because, as UC-Irvine Economics professor David Neumark put it recently in an article for the LA TImes, "data indicate that minimum wages are ineffective at delivering benefits to poor or low-income families, and that many of the benefits flow to higher-income families. That's because minimum wages target low wages rather than low family incomes. And many minimum-wage workers are not poor or even in low-income families; nearly a quarter are teenagers who will eventually find better-paid jobs. Moreover, most poor families have no workers at all. As a result, for every $5 in higher wages that a higher minimum imposes on employers, only about $1 goes to poor families, whereas roughly twice as much goes to families with incomes above the median."
Ideally, we wouldn't need to redistribute income. But since we apparently do, let's call it what it is and get on with it rather than politicizing the issue and making villains out of entrepreneurs.
KM
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