1. In 1900, about 47% of the U.S. labor force was employed in agriculture; today that figure is just about 1%, and we have more food produced each year today relative to then. This change occurred due to technological innovations (i.e., fertilizers and new farming techniques) and machinery that could do what labor once did. In fact, if you travel to a poor developing country today you'll see a greater percentage of its workforce engaged in agriculture relative to the percentage of the workforce in rich developed countries. This same trend is now happening with manufacturing. Why at this event are we discussing ways to preserve manufacturing labor in this country? Isn't the subtitle of this event, "Jobs for the Next Generation"?
2. The sole purpose of trade - whether it be with my wife, my neighbor, some stranger in Detroit, or some stranger in Tokyo - is to increase my consumption possibilities, not my production possibilities. If I really wanted to preserve potential jobs we should ban trade with anyone and instead produce our own cars, homes, food, clothes, books, etc. Obviously self-sufficiency leads to poverty. If we can agree that increasing consumption is our objective, why are we concerned at this meeting with preserving jobs in this country? There are an infinite number of things to be done and if machines or workers in foreign countries can do some of them for us, why is that considered detrimental to our economic well being?
3. There was concern expressed during the panel discussions that the economic output of the U.S. is losing ground to the combined economic output of China, Brazil and India, three-fourths of the BRIC countries. Why is this surprising? These three countries make up nearly 1/2 of the world's population while the U.S. makes up about 1/20th. Additionally, these three countries are becoming more productive and economically efficient because they have adopted more free market reforms over the past thirty years. Why are we concerned about that? Shouldn't we be relishing in the fact that as workers in these countries become more productive and efficient their opportunity costs increase for producing goods and services in which we have comparative advantages? This means we can potentially obtain more goods and services at lower cost to us. Why should we ever worry ourselves about people in other countries (or even in Florida, for that matter) becoming more productive?
4. Damon Silvers from the AFL-CIO perpetuates numerous myths about middle class incomes having declined in the U.S. over the past four decades, this despite increasing worker productivity. (Ron Brownstein also argues that median household income has declined in the US since 2000.) What evidence does he (or Mr. Brownstein) have for this claim?
Below is a graph showing employee compensation received as a percentage of GDP. (Source: U.S. Federal Reserve Bank's FRED database.) In 1959 employee compensation was about 55% of GDP, it hits a peak around 59% in 1969, drops slightly in 1983, and then returns to around 55% by 2009.
Yes, there appears to be some slight decline. But what has happened to employer expenditures on employee health care over this period? We are receive a greater percentage of our total compensation today in the form of benefits relative to thirty and forty years ago, especially as health care costs have risen over the past thirty years. Michael Cox of the Dallas Federal Reserve explains well the trend in middle class incomes.
Additionally, payroll taxes increased significantly beginning in the late 1970s, more so in 1980 as the threshold income on which FICA and Medicare taxes was based increased, and then increased significantly again beginning in 1983 when the government began indexing this threshold to the increase in the average wage rate. Remember, the employer portion of FICA and Medicare taxes is paid by the employee in the form of reduced compensation.
Lastly, beginning in 2001 there was a long and protracted decline in the number of jobs created, mostly due to the recession, but also, I believe, due to structural changes in our economy. A surplus of labor in, say, the manufacturing sector leads to lower employee compensation as labor supply in certain sectors increases, and remains so until either these workers are retrained for jobs of the new economy (where wages tend to be higher), or until retirement thins the oversupply and the next generation of workers are equipped for jobs in the new economy.
To respond to Brownstein (who, by the way, is an outstanding gentleman and I appreciated greatly the time he took to speak to my wife and me), household income is a poor proxy for determining changes in income characteristics through time because households change. One of the biggest factors has been the change in the number of foreign born workers in the US workforce today relative to thirty and forty years ago. In 1970, 5.2% of the U.S. labor force age 25 and older was foreign born; in 2009 it was 15.5%, nearly three times as many. 50.1% of foreign-born workers in the U.S. today are of Hispanic or Latino descent; they have lower levels of education, which means they have fewer skills today relative to the workforce of forty years ago. The majority of foreign-born workers of Hispanic or Latino descent never earned a high school diploma. This means that there is an increasing number of lower skilled workers in the workforce, many of them possessing even fewer skills than the average worker in the bottom quintile of household income forty years ago. Whenever the marginal is less than the average, the average must fall.
5. Throughout this program, the panelists and speakers discussed "public-private-education" partnerships as a means of increasing our competitiveness around the world. There has been no greater public-private partnership in this country in every conceivable measure than with education, both at the secondary and post-secondary levels. In fact, we've doubled real per pupil expenditures on secondary education over the past forty years and the only change has been a slight decrease in science scores. As Joel Klein recently pointed out, the problem is a lack of competition in our government schools.
Why do the panelists think that taking from successful, more competitive firms and industries to subsidize less competitive firms and industries will promote our competitiveness around the world? Would the panelists agree that there are extreme information and incentive problems with government deciding on winners and losers in the global marketplace? If we want our industries looking more like government schools, then this is a winning strategy. If instead we want more competitive industries and jobs for the next generation, let them compete and win or fail based on successful innovation and discovery, not their political connections that tend to preserve the status quo and firms that cannot stand on their own.
(BTW - Japan's MITI was notorious for subsidizing industries as a means of increasing Japan's global economic dominance. Their success record is abysmal, with about 12 failed "investments" for every successful one. People who look favorably at the automobile and electronics sectors of the Japanese economy of the 1960s - 1990s ignore the opportunity costs of the money that was spent subsidizing the 12 sectors per each one of these successful sectors that failed to materialize and produce value to the Japanese economy. Anyone ever heard of Bastiat's Broken Window Fallacy?)
Overall, it was worth attending the "Road to Prosperity" discussion. Unfortunately, I spend my life trying to dispel the myths I heard perpetuated at this forum.
