Thursday, March 27, 2014

Globalization and Inequality

In my book The Politics of Simple Living, I argue that it is possible for the global economy to bring a future with widespread prosperity, if we act decisively to control environmental problems such as global warming, and if nations shift to slower growth when they reach the point where growth no longer improves well-being - about half the current per capita GDP of the United States.

Increasing income inequality seems to challenge this view. In the United States, most income gains are now going to the rich, while low and moderate incomes are stagnating or even declining. Some economists, such as Thomas Pickety, claim that this trend will get worse in the coming century.

But this is an American perspective.  Globally, those with middle incomes are doing well, as we can see in this graph.


Globalization has created a huge pool of low-cost labor in the developing nations that competes with labor in the developed nations. Because of this competition, wages in the developed nation are stagnating, but wages in the developing nations are growing.

If we manage to avoid ecological crisis and current trends continue, wages in most of the developing nations will reach middle-class levels by the end of this century.  At that point, the world will be in a situation like the United States in the 1950s and 1960s, where wages go up steadily because there is little competition from low-cost labor.

Economists should realize that wages depend on supply and demand. In the United States, in western Europe, and in the other developed nations, wages went up during the post-war period, because population growth had slowed, limiting the supply of labor at a time when there was little competition from the developing nations.  Since the 1980s, wages have stagnated, because globalization made a vast new pool of labor available.  But by the end of this century, population growth will slow world-wide, and the supply of cheap labor will dry up, as it did in the developed nations in the 1950s and 1960s.

Of course, this possible future should not make us ignore the current problems of the American middle class.  We should use the tax system to reduce inequality, by increasing taxes on the rich and on unearned income, by lowering taxes on the middle class, and by increasing the Earned Income Tax Credit for those with lower incomes.

And this possible future should not make us complacent that global economic growth will solve all our problems.  On the contrary, unless we act decisively to control global warming and other environmental problems, economic growth will lead to an environmental crisis that will cause more human suffering than has ever occurred in history.

But if we succeed in dealing with environmental problems, we could have a world with widespread prosperity by the end of this century.  All through history, the great majority of people have lived in poverty.  We could move toward a future where the great majority live in middle-class comfort.

The graph is from the New York Times article, "A Global Boom but Only for Some," by Eduardo Porter.

Wednesday, February 26, 2014

Pastiche

Modernist architecture critics condemn any neo-traditional building as a "pastiche." Because this word is a cliche that they repeat without knowing what it means, they should consider a real pastiche, the Metropolitan Opera's performance of "The Enchanted Island."


The pastiche or pasticcio is an artwork made out of (or in imitation of) works of other artists. The Italian pasticcio originally meant a pie filling made of diverse ingredients, so a pastiche includes or imitates the works of many artists. 

Pastiche operas were popular through the early nineteenth century, using heavily revised librettos and adding the favorite arias of the performers. "The Enchanted Island" revives this tradition, with a libretto based on a combination of Shakespeare's Tempest and Midsummer Night's Dream and with arias taken from Handel, Vivaldi, Rameau, and others.

Architecture critics call any building that imitates historical styles a "pastiche," thinking that the word means an imitation, but they are wrong about the meaning.

For example, Jefferson's Monticello imitates the style of Palladio, but it is a unified work rather than a pastiche. If someone designed a building that looked like Monticello but had a dome like the Brunelleschi's Duomo in Florence replacing its Palladian dome, that would be a pastiche.

Should we condemn pastiche as fiercely as today's modernists do?  It obviously cannot be the greatest art, because it is not completely unified. But the success of "The Enchanted Island" proves that it can be enjoyable if it is well done.

Of course, modernist critics are too serious to appreciate works like this.  Rather than "The Enchanted Island," they prefer something like John Cage's aleatory music, composed using chance - or like Cage's 4'33" which has the musicians sit in silence for four minutes and thirty-three seconds.  This is serious art, unified expressions of the sensibility of a single artist, theoretical works meant to subvert the conventional idea of what music is.

The only problem is that no one can actually enjoy Cage's works in the way that normal people enjoy music.

The New York Times critic writing about "The Enchanted Island" defends it by using modernist rhetoric to attack modernism: "'The Enchanted Island' was designed to subvert modern ideas about the primacy of composers’ intentions."

Of course, it was actually designed so people could enjoy the music - but if today's critics need to invoke subversion in order to defend real music, let's make the most of it.

See the NY Times article.

Sunday, January 12, 2014

Declining Work Force Participation - Good or Bad?

I have seen lots of news and commentary about the fact that labor force participation has been declining, and they all assume without thinking about it that it is a bad thing, a result of unemployed workers getting discouraged by the recession and giving up on finding new jobs.  
Yet the labor force participation rate is still relatively high in historic terms, as we can see in the following graph:
The real question is whether people are leaving the labor force because they cannot find jobs or are leaving voluntarily. A very short article buried in the business section of the New York Times was the first place that I saw news about this key question:
People keep leaving the labor force. The share of Americans either working or looking for work sank to 62.8 percent in December, tying October for the lowest level since 1977 – an era when women were much less likely to work.
One explanation is that baby boomers are shuffling into retirement. The trend is demographic rather than economic. People are not working because they are old.
Another explanation is that people have abandoned hope of finding jobs.
Both explanations are true for some people. What we don’t know are the proportions. We don’t know how many of the people who have stopped looking for work might want to return to the ranks of working adults as the economy rebounds.
… Why are answers so hard to find? In part because the data is subject to multiple interpretations. Those who say they’ve retired may mean that they never want to work again, or they may be taking shelter in the dignity of retirement because they can’t find work
… A sobering piece of economic modeling by the St. Louis firm Macroeconomic Advisers, published last summer, concluded that the participation rate was not likely to rebound because the damage done by the recession would not be reversed quickly enough to keep ahead of the long-term demographic trends.
It turns out that economists don't know whether most people are leaving the work force voluntarily or because of unemployment, and the pundits are just assuming that less work must be a bad thing.

Is this "sobering" news really as bad as they say?  Obviously, it is better if people can afford to retire rather than having to work until they drop.

Since labor force participation has declined to the level to the level of 1977, it still has a way to go before it reaches the level of the 1950s and 1960s - which were prosperous times economically. The Bureau of Labor Statistics projects that "overall labor force participation rate is expected to decrease from 63.7 percent in 2012 to 61.6 percent in 2022" primarily  because of the aging of the population.  That is above the 58% to 60% that was typical in the 1950s and 1960s.

Even with lower workforce participation, it should be much easier than it was back then for the workers to support everyone, because the average worker produces more than twice as much per hour now as in the 1950s or 1960s.  The only problem is that average people are not getting a fair share of increased productivity, as we saw in the last post, because of growing inequality.

The elderly man who sells newspapers at my transit station recently told me that he plans to retire in 25 years, when he is exactly 100 years old.   I guess the pundits would say that it is good news that he is still selling papers at 75 and can't afford to retire, because it gives us a higher rate of labor force participation.  

BLS projection from http://www.bls.gov/opub/mlr/2013/article/labor-force-projections-to-2022-the-labor-force-participation-rate-continues-to-fall-1.htm

Wednesday, January 01, 2014

A Fair Share of Productivity Gains

I came across this chart used by Robert Reich, and I am posting it because it shows so clearly that the average American used to get a fair share of productivity gains but no longer does.


From 1947 to 1979, the compensation of non-supervisory workers increased by almost as much as productivity.

From 1980 to the present, compensation stagnated as productivity continued to grow - partly because of deliberate economic policies that were adopted by the Reagan administration and that remain in place, such as a dramatically less progressive income tax.

The chart is from Robert Reich, "The Limping Middle Class," New York Times, Sept. 3, 2011.

Tuesday, December 17, 2013

Edward Glaeser - Free-Market Economist Posing as Urbanist

Edward Glaeser, Harvard professor and author of The Triumph of the City, has become a favorite of some smart-growth advocates because of his strong support for high-rises - but they don't know that Glaeser supports sprawl for the same reason, because he believes that unleashing the market to increase the supply of housing will keep down the cost of housing.

In a recent article in City Journal, Glaeser wrote:
"To understand the power of unfettered supply to promote affordability, compare Republican Texas with Democratic Massachusetts. Bay State leaders constantly proclaim their passion for providing affordable housing for the poor. Yet Massachusetts remains one of the least affordable states in the nation for housing because its suffocating regulations restrict building, shoving up prices. By contrast, Texans, who rarely talk about affordable housing, enjoy lots of it (see “The Texas Growth Machine”). Texas’s housing affordability isn’t the result of any top-down government program; it reflects the might of the free market and the Texan aversion to regulation."
He made his support of sprawl even clearer in a scholarly paper he co-authored, named "Sprawl and Urban Growth," which says in its abstract:
"Sprawl has been associated with significant improvements in quality of living, and the environmental impacts of sprawl have been offset by technological change. Finally, we suggest that the primary social problem associated with sprawl is the fact that some people are left behind because they do not earn enough to afford the cars that this form of living requires."
Do we really want to deregulate urban growth, Texas style, as Glaeser suggests? We might be able to make housing more affordable by building cities like Houston and Dallas instead of cities like Boston, but it would be at the expense of paving over open land, of increasing greenhouse gas emissions, and of living in ugly, boring cities.

And there is also a considerable expense to the city's residents, who pay less for housing but pay much more for transportation.  It is ironic that Glaeser advocates sprawl to make housing more affordable, but he adds (without seeing the obvious contradiction) that "some people are left behind because they do not earn enough to afford the cars that this form of living requires."

Glaeser's thinks about urbanism like a free-market economist who knows one thing: you can reduce the price of a commodity by increasing its supply.  He knows little and cares less about urban design or about quality of life.

He proved how little he knows about urban design when he misrepresented one of the most important texts about urban planning, Jane Jacobs' Death and Life of Great American Cities, in an article in the New York Times, where he wrote:
"Her [Jacobs'] preferred density level seems to have been about 150 housing units per net acre, which means six-story buildings if units average 1,600 square feet. Six stories also seems to be the maximum height that people are willing to walk up regularly, which may explain why it is the norm in many older pre-elevator areas. Now I don’t have anything against Greenwich Village or six-story buildings, but the perspective of the economist pushes strongly against any attempt to postulate or, far worse, regulate a single perfect density."
This is a blatant misrepresentation of Jane Jacobs, who said very clearly that she prefers the neighborhoods with the maximum density that is possible without eliminating diversity of building types. She preferred neighborhoods with buildings that are a mix of different building ages and types, including high-rise elevator buildings. She liked Greenwich Village because it had a mix of new high-rise buildings with its older buildings, not because it had no buildings over 6 stories.

She objected to high densities only when they were so high that they required standardization. In other words, she did not object to high-rises, but she did object to neighborhoods that were made up exclusively of high-rises.

Here are some quotations from Jane Jacobs that make this point (with page numbers referring to the 1963 Vintage edition paperback of The Death and Life of Great American Cities):
"How high 'should' city dwelling densities go? ... Obviously, if the object is vital city life, the dwelling densities should go as high as they need to go to stimulate the maximum potential diversity of of a district. ... densities can get too high if they reach a point at which, for any reason, they begin to repress diversity instead of to stimulate it. ... The reason building dwelling densities can begin repressing diversity is this: At some point, to accommodate so many dwellings on the land, standardization of the buildings must set in." p. 212 [Note that she puts "should" in quotation marks.]
"At any particular place and time...some particular way of packing dwellings onto the land is apt to be the most efficient way. At some places and times, for example, narrow three-story row houses were apparently the answer for maximum efficiency at getting city dwellings onto the land. Where these crowded out all other dwelling types, they created a pall of monotony." p. 213
"Elevator apartments are today the most efficient way of packing dwellings on a given amount of building land. And within this type are certain most efficient subtypes, such as those of maximum height economic height for low-speed elevators, usually considered today as twelve stories, and those of maximum height for pouring reinforced concrete (... twenty-two stories). p.213
"Elevator apartments do not produce standardization by virtue of being elevator apartments, any more than three-story houses produce standardization by virtue of being three-story houses. But elevator buildings produce standardization when they are almost the only way a neighborhood is housed - just as three-story houses produce standardization when they are almost the only way a neigbhorhood is housed." p. 214
"Popular high-density city areas have considerable variation among their buildings.... Greenwich Village is such a place. it manages to house people at densities ranging from 125 to above 200 dwelling units per acre, without standardization of buildings. These averages are obtained from mixtures of everything from single-family houses .... on up to elevator buildings of many different ages and sizes." p. 214.
"just how high can a neighborhood's densities go without sacrificing the neighborhood to standardization?" p. 216
"I doubt that it is possible, without drastic standardization, to go higher than the North End's density of 275 dwelling units per net acre. For most districts - lacking the North End's particular and long heritage of different building types - the ultimate danger mark imposing standardization must be considerably lower; I should guess, roughly, that it is apt to hover at about 200 dwelling units to the acre." p. 217 [Note that this maximum is not the density of 150 units per acre that Glaeser says she prefers because it is common in older neighborhoods without elevator buildings; it is the density of neighborhoods that have a mix of high-rise elevator buildings added to the older buildings, and it is almost twice as high as the density that Glaeser says she prefers.]
I myself admire most of what Jacobs wrote about cities, but I disagree with her on this point. I think you get the best urban design with height limits of about six stories for fabric buildings, like traditional European cities.

But whether you agree or disagree with a writer, you should begin by getting the facts right about the writer you are discussing, and Glaeser clearly does not get the facts right. The quotations above shows that Glaeser is totally wrong to say that Jacobs is against high-rises and prefers neighborhoods made up of one building type, six-story buildings.

This ignorance of one of the foundational texts of contemporary city planning proves that Glaeser is not an urbanist.

Imagine that someone wrote an opinion piece about economics which said that Adam Smith was wrong to believe that government should set prices.  Anyone who knows anything about economics knows that Adam Smith believed that the market should set prices.  If someone made the obvious blunder of saying Smith believed the government should set prices, no one would ever take seriously anything that he wrote about economics.

Likewise, after Glaeser made the obvious blunder of saying Jane Jacobs believes in a six-story height limit, no one should ever take seriously anything that he writes about urban design.

Thursday, November 28, 2013

Shorter Work Hours than France

People sometimes say that France's short work hours are causing its economic problems, but they don't realize that Germany, Europe's economic powerhouse, actually has shorter hours than France.

 We hear a lot of news about France's short work hours, because of the controversy about its 35 hour work week, but in fact, northern European countries with strong economies have the world's shortest work hours, as we can see in this graph. 
 
source: OECD

And which country in the Eurozone has the longest work hours? Greece, with Europe's most problematic economy. 
 

Monday, October 07, 2013

Paul Krugman's 1950s Revival

In the first post in his New York Times blog, Paul Krugman explained the central idea of his blog, saying:

“I was born in 1953. Like the rest of my generation, I took the America I grew up in for granted – in fact, like many in my generation I railed against the very real injustices of our society.... It’s only in retrospect that the political and economic environment of my youth stands revealed as a paradise lost, an exceptional episode in our nation’s history.”

Then Krugman contrasts the broadly shared prosperity of the 1950s and 1960s with today's economy, where the very wealthy now get a much larger share of income than they did.

It is tempting for liberals to be nostalgic about the post-war economy, reacting against today's inequality, but we also need to remember the other side of the post-war economy: It deliberately promoted consumerism - often in ways that we now know were destructive.

For example, the federal government encouraged suburban sprawl, by offering FHA guaranteed mortgages only for new suburban construction and by building interstate highways that sliced through older neighborhoods for the commuters from those new suburbs. 

Sprawl was such a key part of the post-war prosperity that the period is symbolized by suburban homes and by over-sized cars with tail-fins. Sprawl was a major part of a larger effort to promote rapid economic growth by stimulating consumer demand.  Yet now we can see that sprawl not only has damaging environmental effects, paving over open land and contributing a large chunk of our greenhouse gas emissions, but also has damaging social effects: The new auto-dependent suburbs had less public life and less sense of community than the older streetcar suburbs that the replaced.

Two graphs can help us get a more balanced view of the post-war economy, both its relative equality and its runaway consumerism.

The first is a graph that Krugman uses to show how much inequality has increased.

There are distinct economic periods on this graph, and Krugman has labeled them: 
  • The long gilded age was a time of extreme inequality which extended through the 1920s, beyond what we usually think of as the gilded age.  
  • The great compression was the time when inequality declined dramatically. The chart shows that this occurred during the Roosevelt administration, as a direct result of New Deal policies such as higher taxes on the rich.  
  • Middle-class America was the time when these policies bore fruit. By giving all income levels a fair share of prosperity, they brought us the prosperous middle-class nation of the post-period. 
  • The great divergence began in the 1980s, as a result of Reagan administration policies, including sharply lower taxes on the rich. These policies have brought us to the point where we have as much inequality now as in the gilded age. 
I agree completely with Krugman's point, but let's take a more balanced view of this post-war "paradise lost" by looking at a chart of the average work week in American manufacturing, where we have the best historical data.

 Work hours declined steadily from the beginning of the industrial revolution through the 1920s. Then hours dipped sharply during the Depression and rose during World War II. Then hours suddenly stopped declining during the post-war period.  Today, we still have the standard 40-hour week of 1950s.

During the post-war period, the Gross National Product was considered an index of well-being, so economic growth was considered an unalloyed good. All through our history, we had taken the benefits of prosperity in a balanced way, both in the form of shorter work time and in the form of more income and economic growth.  But in the post-war period, the only goal was growth.

We can imagine how different the country would be today if post-war America had continued to take the balanced approach of our earlier history.  Rather than deliberately promoting sprawl and automobile use to "stimulate the economy," we could have built walkable, transit-oriented suburbs - and taken advantage of the money we saved to work shorter hours.

I would be very happy to go back to the tax policies of the Eisenhower era, with its high taxes on the rich, but I don't think we want to go back to other policies of the Eisenhower era, such as building freeways through cities.  In fact, we still need to get beyond some of the policies of the Eisenhower era, such as using the GDP as a measure of well-being.

 Inequality makes if more difficult for moderate-income people to cut their work hours, since many of them are struggling to get by.  But the two graphs show that work hours went down rapidly during the 1920s, when inequality was at its highest point.  If they chose more free time back then, when incomes were much lower than ours, we should be able to do the same today.