Tyler Cowen and ‘something amiss’
by Mike Kimel
Cross posted at the Presimetrics blog
I really don’t understand this post by Tyler Cowen. He begins by noting:
The median earnings of full-time Canadian workers increased by just $53 annually — that’s right, $53 annually — between 1980 and 2005.
He then links to two documents, one of which says this:
A more likely explanation is that the rich have used their clout to get governments in the United States, Britain and Canada to change the rules, redirecting economic benefits to themselves.
They convinced governments, for instance, to alter the rules governing executive stock options, making them much more lucrative. (Although only about one-third of Canada’s top corporations were using stock options early in the 1990s, they were all were using them by the end of the decade. The value of stock options for Canadian CEOs exceeded their salaries by 300 per cent.)
The rich also managed to use their control of corporate boards to push up executive compensation. Since corporate boards are largely made up of corporate executives, a decision to raise the salary of an individual CEO helps set a higher standard for executive pay generally, benefitting all board members.
“They have a conflict of interest, since they have a stake in high financial salaries,” notes Richard Posner, a critic of today’s executive compensation (and also, incidentally, the judge who recently turned down Conrad Black’s U.S. legal appeal).
The rich also greatly enriched themselves by convincing governments to lower their taxes. Whereas the top marginal tax rate — the rate paid on income above a certain level — averaged 80 per cent in Canada in the early postwar years; it is now just 46 per cent (39 per cent in Alberta).
It was argued that lower taxes would encourage better performances at the top, increasing overall economic growth.
But that didn’t happen. On the contrary, economic growth rates were higher in the early postwar years — roughly twice as high — as they’ve been since 1980.
This suggests that higher taxes on the rich — like those in the early postwar era — do not discourage economic growth.
In fact, the introduction of an inheritance tax in Canada (like ones that exist in almost all advanced nations) would enable Ottawa to collect enough revenue to create educational trust funds for all Canadian children, thereby significantly improving national productivity.
Yet anyone advocating higher taxes on the rich is quickly denounced by groups like the right-wing Fraser Institute. Mark Milke, a commentator with the institute, dismisses concerns about rising inequality in Canada as merely the product of envy, or what he calls the “green-eyed beast.”
The very next sentence Cowen writes:
This is one reason why I do not adhere to some of the progressive or “class struggle” explanations of relative stagnation in median income growth. Canada is not ruled by the so-called Republican Right.
I don’t know enough about Canada to say whether or not the article he linked to is correct, but it seems to be directly contradicting his thesis.
I note that his blog has a very, very healthy comment section, and it doesn’t seem like the folks leaving comments noticed anything amiss either. Very odd.
Mike
I guess his point was that Canada did not have Ronald Reagan for President. That passes for logic in some circles… notably the kind of circles Tyler Cowan reasons in.
So it is necessary to say clearly that the “upper class” is international. The “rich” without necessarily meaning any harm, do harm simply by pursuing their own self interest. That is just human nature, and the “nature of things.” What it means is that a democracy that fails to nurture a countervailing power that can “check and balance” “the rich” is almost certainly going to suffer the evils of excessive concentration of wealth and power.
Cowen is a hack.
The U.S. is well along the path to being ruled solely for the benefit of the ultra-rich. Canada started from further back on that path, and still is further back, but has PROGRESSED along that path in much the same way the U.S. has. Canada is currently ruled by a right-wing – for Canada – party, which is to say the ruling party has roughly the same beliefs as the Democrats in the U.S. Tax cuts for the rich – yes! Cutting benefits for the poor – yes!
Canada has a lot farther to fall, but is falling at the same rate as the U.S.
The biggest meme to rip through the econo-political blogosphere so far in 2011 has been Cowen’s ‘the great stagnation’. There has been a divergence between median income growth and per capita income/GDP growth.
Why?
Cowen believes that it’s caused by a stagnation in economic growth, while Paul Krugman believes it’s those “evil” (Krugman’s words) tax-cuts for the rich and de-unionization.
A far stronger argument is made by Katz & Goldin from Harvard University — two liberal economists by the way. In their book “The Race between Education and Technology” The authors document the strong relationship between education and income growth. They also identified a “slowdown in the rate of growth in the college/no college ratio in the workforce”. Up until the early 80s, This ratio was growing by more than 3% per year, but has sicne slowed down to about 2% — it was almost up to 4% for a while in the 1970s.
So after boomers graduated high school and college and entered the workforce, the ability of American Education to meet the market’s demands for skilled workers declined.
This is why we see income inequality. Katz and Goldin argue that if we had seen the same college growth rate we had with the Baby Boomers continue for the Gen-Xers and Millenials, inequality would be no different than what it was in 1973.
Katz and Goldin prescribe traditional social democratic remedies for the problem: better access to higher education, more student aid, etc. — but the problem may be that we have fewer college-ready high school grads than we had 30 years ago…this is despite a massive increase in per pupil spending since the 70s.
Is it because Boomers took over academia/K-12 and are not nearly as good at educating students as their predecessors? Did the feminist movement encourage all the brilliant women who were the teachers for baby boomers to enter the workforce?
Or (my hypothesis) is our industrial-era education system poorly designed to meet the demands of the information economy? The government built the education system to churn out workers for an industrial economy — and it is still successfully doing that. The economy has evolved and the education system has not.
http://www.amazon.com/Race-between-Education-Technology/dp/0674028678/ref=wl_it_dp_o?ie=UTF8&coliid=ISG8TJ5E5R6Q9&colid=23N21LUQ0JBQN
The biggest meme to rip through the econo-political blogosphere so far in 2011 has been Cowen’s ‘the great stagnation’. There has been a divergence between median income growth and per capita income/GDP growth.
Why?
Cowen believes that it’s caused by a stagnation in technological growth, while Paul Krugman believes it’s those “evil” (Krugman’s words) tax-cuts for the rich and de-unionization.
A far stronger argument is made by Katz & Goldin from Harvard University — two liberal economists by the way. In their book “The Race between Education and Technology” The authors document the strong relationship between education and income growth. They also identified a “slowdown in the rate of growth in the college/no college ratio in the workforce”. Up until the early 80s, This ratio was growing by more than 3% per year, but has sicne slowed down to about 2% — it was almost up to 4% for a while in the 1970s.
So after boomers graduated high school and college and entered the workforce, the ability of American Education to meet the market’s demands for skilled workers declined.
This is why we see income inequality. Katz and Goldin argue that if we had seen the same college growth rate we had with the Baby Boomers continue for the Gen-Xers and Millenials, inequality would be no different than what it was in 1973.
Katz and Goldin prescribe traditional social democratic remedies for the problem: better access to higher education, more student aid, etc. — but the problem may be that we have fewer college-ready high school grads than we had 30 years ago…this is despite a massive increase in per pupil spending since the 70s.
Is it because Boomers took over academia/K-12 and are not nearly as good at educating students as their predecessors? Did the feminist movement encourage all the brilliant women who were the teachers for baby boomers to enter the workforce?
Or (my hypothesis) is our industrial-era education system poorly designed to meet the demands of the information economy? The government built the education system to churn out workers for an industrial economy — and it is still successfully doing that. The economy has evolved and the education system has not.
http://www.amazon.com/Race-between-Education-Technology/dp/0674028678/ref=wl_it_dp_o?ie=UTF8&coliid=ISG8TJ5E5R6Q9&colid=23N21LUQ0JBQN
Technological growth and change rewards those with higher-end skills. And those with those skills have benefitted enormously over the past 30 years. The problem is that the rest of society has failed to keep up education-wise.
So you can either fix the human capital formation problem or punish those who are benefitting from the sytem.
Cown is not a hack — widely respected.
And you nailed it “right wing for Canada” — that’s still a centrist party as Canada is a center-left country.
Cowen was setting up the closest thing you can do to a controlled experiment in the social sciences:
Both countries have similar levels of economic development, geography, human capital, free markets, etc. — but Canada has pursued a more progressive tax/redistribution scheme while the US has not.
However, both are suffering the same symptom.
The logical conclusion would be that the tax/redistribution variable is not a significant factor in income inequality.
Another data point to consider is that both the US and Canada have the highest immigration rates in the world — for non-small countries at least (the UAE’s immigration doesn’t really count, does it?).
If you take millions of immigrants and put them at the bottom of the income ladder, the median wage is going to go down, even if that middle-class american or canadian is making more money.
What would happen if 50 million foreigners moved into the US in 2011 and started working? The average American would be making the same amount of money, but the “median” number would tank.
I am very pro-immigrant and I am open-borders — my point is that immigration wreaks havoc on statistical data, and misleads analysts.
Nick,
After reading this I do not understand how you respect Cowen.
He cherry picks to substantiate his libertarian biases.
Or as someone at Mark Thoma’s about the Cowan article in NY Times 5 Mar said: “He lies his ass off to prove his libertarian theories.” Not that I bother with Cowen.
However, I don’t know about linking education with anything unless you think the supply of educated people will create demand for educated people.
Which I think you need to ask teachers in several states.
Not to cherry pick, mind you.
Everybody cherry-picks data in the social sciences — many studies are not translatable to other studies. It’s not like the hard sciences.
Krugman does it all the time; he had a map of unemployment rates by state — and he color-coded the data in such a way that it appeared as if only the unpopulated states had low unemployment. He did this by making all states with 7% to 9% unemployment all the same color, then breaking out each bracket below that as a different color.
I consider myself a libertarian — non-coercive means of exchange — usually markets but charities fall into this category as well — are the only humane and morallly defensible way of allocating scarce resources.Robbing Peter to pay Paul because Paul controls 51% of the vote is not morally defensible.
I think that Cowen mis-read the great stagnation. The Economist’s review of Cowen’s TGS said the same thing — he got it backwards: the slowdown in educational attainment is causing inequality, not the other way around.
Everybody cherry-picks data in the social sciences — many studies are not translatable to other studies. It’s not like the hard sciences.
Krugman does it all the time; he had a map of unemployment rates by state — and he color-coded the data in such a way that it appeared as if only the unpopulated states had low unemployment. He did this by making all states with 7% to 10% unemployment all the same color, then breaking out each bracket below that as a different color.
I have news for you — there’s a big difference between 7% unemployment and 9.9% unemployment.
I consider myself a libertarian — non-coercive means of exchange — usually markets but charities fall into this category as well — are the only humane and morallly defensible way of allocating scarce resources.Robbing Peter to pay Paul because Paul controls 51% of the vote is not morally defensible.
I think that Cowen mis-read the great stagnation. The Economist’s review of Cowen’s TGS said the same thing — he got it backwards: the slowdown in educational attainment is causing inequality, not the other way around.
Cowen is busy this week burning up the ribbon on his typewriter. Peter Dorman has an insightful review of Cowen’s column in the NY Times ovfer at EconoSpeak,
http://econospeak.blogspot.com/2011/03/economic-illiteracy-tyler-cowen.html
A hack? Well I took the time to learn who Tyler associates with at GMU. He’s the Director of the Mercatus Center in addition to holding an endowed chair. Check out the Bd of Directors of the Mercatus Center, http://mercatus.org/all-people?type=board-of-directors. Not exactlly a range of perspective it would seem. It helps to understand who a man associates with if you want to understand how he thinks and why he presents the arguments that he does. it helps to know where his bread is buttered.
The critique of TC at EconoSpeak is plain wrong. All government debt is retired — it’s just that much of it is rolled over.
Most people consider a government bond a claim on future tax receipts — I don’t understand what’s so controversial about TC’s comments.
The GMU staff is built around the economic thoughts of nobel-prize winner James Buchanan — public-choice theory. Other schools in Virginia take similar approaches.
I thought you would find it refreshing to see a little diversity in economic thought. Not everyone is a Keynesian, but you would think so if you looked at Econ departments across thr country.
Nick
your failure to see the logical stupidty of Cowans argument suggests your education was largely wasted.
as for the economic value of education… you are aware that after “industry” decided it needed more programmers, the schools started churning out programmers and the wages of programmers fell.
so did the quality, but that’s another issue. programming talent is no more widely distributed than basketball talent. if you can get along with mediocre players, you can “educate” them to a tolerable level of competence, but that is NOT a fault of the teachers.
but, just so you know, teaching talent is no more widely distributed than basketball talent. if you can get along with mediocre teachers…
“libertarian” thought is thought that stopped at the age of fourteen.
you may not like taxes, but without coercion of taxes there would be no government to defend you libertarians from the really nasty guys. most of whom are out there telling you they will cut your taxes.
before they cut your throat.
“If you don’t agree with me you’re stupid” — is that the best liberals can do in an argument?
Community colleges, vocational schools, and some 4-year colleges train programmers — they are more adaptive to customer needs than K-12. As I mentioned, the problem is that we don’t produce enough college-ready kids.
And who said anything about mediocre teachers? To continue with your basketball analogy —
If the NBA players association were run like the teachers union, superstar rookies would get cut before aged veterans — regardless of ability. If you wanted to cut a veteran, you’d have to go to arbitration.
Canada is not a centre left country. Canada is a centre right country. The US is a right of centre and right-wing country. Starting with Mulroney, Canada began moving increasingly from the centre to the right. And we have an oligarchical elite structure. Our elite is just much more hush hush and well mannered.
On the global scale, it is:
http://www.thenation.com/article/rethinking-canadian-exit-strategy
What gibberish. I thought you’re supposed to learn to respect other people’s things as a toddler.
libertarian DOES NOT EQUAL anarchist.
Let us be grown-ups and separate non-rivalrous public goods from everything else the government does. National Security, clean air, public domain information, a common legal code, etc.
Nick,
National security as operated in the US is a gorm of national socialism, how can a libertarian support socialized corporate welfare?
I consider myself a seeker.
“I consider myself a libertarian”
Why attach yourself to ideology?
Particularly one so vague.
And how can one with “non-coercive means of exchange” conscion the US form of “national security”?
I await a response that is lucid, far more than you gave coberly.
Because the post was in regards to Cowen’s ‘ideology’ — that’s why I mentioned libertarianism. I wanted to state that I share a similar worldview to Cowen but disagree with him on his thesis.
In regards to national security – non-rivalrous public goods are far different than other government services. Granted, out national security apparatus has grown far beyond ‘defense’.
the key words you wrote were “as operated in the US”. It is one thing to accept, in principle, the public provision of national security as a non-rivalrous public good. It is quite another to defend the current military industrial complex.
Nick
Forget the BS regarding Keynes, Buchanan, the Austrians etc. What school of thought one claims to follow is less important than what school yard one plays ball in. There’s the school of hard knocks and then there’s the academy of the silver spoon , not the one that some are born with, but the one that you take your tea with. The Directors list of the Mercatus Center makes it quite clear that free market capitalism is spoken there and the right twist can be put on any theoretical perspective to support screwing the working man to the benefit of wealth and avarice.
Hey Nick,
Don’t let ideolgy get in the way of fanciful thinking!
Nick,
Cowan is running a humbug factory and your view of federal debt is similar.
Nick,
Rolling debt requires deficit spending or taxes raised or spending cut.
I get the idea that the New Deal is bad, and needs cut because the anti new deal coalition does not want to pay off the debt you say is rolled.
Fact is debt is debt unless your libertarian ideology includes breeching contracts, to 100 M folks.
Nick Bradley,
Reread the post. Its a demonstration of Cowen claiming support for a position from a piece that is completely opposed to his position. At best he didn’t read the piece to which he links.
Why this thread went the way it did I am not sure, but Mike’s comment says it concisely and clearly. Nick did bot read the post either, but our response could have been Mike’s to start. I don’t think a yelling match on the merits of idealogy is appropriate to the thread…that can happen anytime on any post during this election cycle, but fail to see how learning is advanced. Slow down folks.
As politics supercedes analysis on blogs it is hard to walk the line between advocacy and analysis…the two are rarely not linked.
@ Nick,
I think it comes down to whether or not you think right, centre, and left are relative or absolute terms. I tend to think of them in absolute terms. Canadians have been steadily drifting to the right as with most other citizens in advanced capitalist countries. If you for example take a look at the actual party program of the NDP (Canada’s so called centre left party) over the years it has drifted from being parliamentary socialists to social democrats to reform liberals to incoherent mushy middle expediency. The BLOC and the Parti Quebecois are by no means left of centre parties. They are above all nationalist parties with everything from socialists to Chamber of Commerce petite republican types under their tent.
At a policy level the last thirty years or so has been a steady stream of neoliberal policies: one free trade deal after another, privatization, contracting out, tax cuts particularly for corporations and their owners, increasing income inequality etc. In short the litany.
By any objective measure Canada is not centre left even if we remain left of the US or Mussolini’s Italy.
Nick
I am not a liberal. I have been banned from liberal blogs for calling them stupid. My problem is that at some point I realize the person I am talking to is … ah…. stupid… and i …. stupidly… say so. this gives them a chance to change the subject and hold up their hurt paw and complain about me being so mean. You see, calling you stupid is much more harmful than, say, your ideas about destroying civilization.
And I believe it was I who said something about mediocre teachers.. right after you said something about incompetent baby boomer teachers destroying education with teachers unions. You see, the difference between you and me is that i can follow a logical thread, whereas you have to stop one thread when it runs dry and start a whole new one in the hope that it will “take.”
MY whole POINT was that basketballl is not factory work… like teaching… you don’t NEED mediocre workers in basketball. You DO need them in teaching. Because mediocre will get the job done… and genius will just get you in trouble with management… with management, not with the union… unless you are like me and call them both stupid.
Thing here is… and i am trying to avoid the S word… is that you cannot follow a logical argument. because your opinions are not logical… and you don’t have the talent for logic. What you have is “memes” you like the sound of.
nick
i wonder if “gibberish” means “stupid.”
I don’t even know what “non rivalrous public goods” means, but i suspect it is a “meme” from a libertarian tract. And that if i would only accept your meme, I would have to accept your program.
How about instead we look at what “government” is and has been for the last 3 thousand years.
Government is coercion. With a little luck and the occasional revolution you can put a bridle on that coercion and limit the damage it does to the people. But you can’t get rid of coercion. The first thing you libertarians would do would be to coerce everyone to do things your way. and when that went to hell… as it would… you would try some uglier forms of coercion, or you would be replaced by the really ugly people who already know that they are just using your naivete to gain power for their own ability to coerce the people.
Rdan
think i’m going to take a time out. if you know of a way to point out to someone that their logic is deficient without violating your standards of civility, let me know. I regard the NIck Bradleys of the world as dangerous, and they are impervious to reasoned discourse. They hop from “meme” to “meme”. WE have a few regulars on this blog, and while I am perfectly happy to allow Nick his say, I can’t see just letting him get away with it without a chance of seeing himself as others see him.
There are ways to say a commenter is doing just that.
And a bit more attention on my part will nip some of thatm in the bud.
This is silly. There are plenty with “higher end skills” who make significantly less than others with “higher end skills”. Further, there are plenty who are just now graduating with “higher end skills” that are struggling to find anywhere to utilize their “higher end skills” and are instead forced to take menial jobs.