It’s incredibly difficult to climb the income ladder in the South

If you’re poor and raising kids in the South, you owe it to your children to move elsewhere as soon as possible. David Leonhardt, for The New York Times:

Especially intriguing is the fact that children who moved at a young age from a low-mobility area to a high-mobility area did almost as well as those who spent their entire childhoods in a higher-mobility area. But children who moved as teenagers did less well.

Income ladder

Poor and middle class students more likely to get stuck with unpaid internships

The Second-Biggest Myth About Unpaid Internships: They’re Just for the Rich:

If anything, poor and middle class students are extra likely to get stuck in unpaid internships. Rich kids, by and large, seem to prefer collecting a paycheck.

Such were the findings of a fascinating 2010 study conducted for Intern Bridge, a consulting firm that specializes in college recruiting, and one of the few major sources of data on the internship market. After analyzing survey responses from thousands of college students, the paper concluded: “Our findings do not support the common contention that students from the wealthiest families have greater access to unpaid internships, even among most for profit companies. Low income students have a much higher level of participation in unpaid internships than students from high income families.”

This was a myth that I believed until I read this article. Turns out I wasn’t completely wrong though: rich kids do tend to take a large share of the unpaid internships in Hollywood and Wall Street.

There are 10 million fewer jobs than there should be

U.S. Is Still 10 Million Jobs Away From Normal:

To get a better idea of where the job market stands, consider a different question: What percentage of the civilian population aged 16 to 65 is employed, and how does that compare to the pre-crisis average? This measure covers everyone, including those who have given up on finding jobs and hence are not counted in the unemployment rate. It also attempts to correct for the effects of an aging population by focusing on one age range.

As of May, the 16-to-65 employment-to-population ratio stood at 67.5 percent. That’s up from 67.2 percent a year earlier, but still well below the average of 72.5 percent in the 10 years preceding the recession that began in January 2008.

In terms of jobs, as of May, the economy was 9.98 million short of the number needed to put the employment-to-population ratio back at its “normal” level of 72.5 percent. That’s better than a year ago, when the number was 10.50 million, but worse than in May 2009, when it stood at 8.93 million.

Think we can create 10 million jobs in the next five years? Keep dreaming. This is what a lost decade looks like.

It turns out that immigration reform would be a huge boost for the economy

The Economic Effects of Granting Legal Status and Citizenship to Undocumented Immigrants:

Under the first scenario—in which undocumented immigrants are granted legal status and citizenship in 2013—U.S. gross domestic product, or GDP, would grow by an additional $1.4 trillion cumulatively over the 10 years between 2013 and 2022. What’s more, Americans would earn an additional $791 billion in personal income over the same time period—and the economy would create, on average, an additional 203,000 jobs per year. Within five years of the reform, unauthorized immigrants would be earning 25.1 percent more than they currently do and $659 billion more from 2013 to 2022. This means that they would also be contributing significantly more in federal, state, and local taxes. Over 10 years, that additional tax revenue would sum to $184 billion—$116 billion to the federal government and $68 billion to state and local governments.

Under the second scenario—in which undocumented immigrants are granted legal status in 2013 and citizenship five years thereafter—the 10-year cumulative increase in U.S. GDP would be $1.1 trillion, and the annual increases in the incomes of Americans would sum to $618 billion. On average over the 10 years, this immigration reform would create 159,000 jobs per year. Given the delay in acquiring citizenship relative to the first scenario, it would take 10 years instead of five for the incomes of the unauthorized to increase 25.1 percent. Over the 10-year period, they would earn $515 billion more and pay an additional $144 billion in taxes—$91 billion to the federal government and $53 billion to state and local governments.

Finally, under the third scenario—in which undocumented immigrants are granted legal status starting in 2013 but are not eligible for citizenship within 10 years—the cumulative gain in U.S. GDP between 2013 and 2022 would still be a significant—but comparatively more modest—$832 billion. The annual increases in the incomes of Americans would sum to $470 billion over the 10-year period, and the economy would add an average of 121,000 more jobs per year. The income of the unauthorized would be 15.1 percent higher within five years. Because of their increased earnings, undocumented immigrants would pay an additional $109 billion in taxes over the 10-year period—$69 billion to the federal government and $40 billion to state and local governments.

It’s like a stimulus package that reduces the deficit.

The government needs to spend money in an economic crisis

Austerity Principles, or How to Save an Economy in Crisis:

Automatic stabilizers work. In the U.S., when it comes to fiscal policy in times of economic crisis, there isn’t much disagreement between the political parties. But if a separate debate over the proper size of government is allowed to intrude (as it has), the result is gridlock.

Policy makers should instead agree in advance to a system of automatic stabilizers that kick in during recessions. These include unemployment insurance extensions and relaxed eligibility standards for food stamps when the jobless rate exceeds, say, 6 percent. By the same token, lawmakers could agree to spend, say, 20 percent more on public works programs when unemployment increases. Automatic stabilizers offset about 20 percent of an economic shock after two years, according to research by Federal Reserve economists. The effect is even bigger in Europe, where automatic stabilizers are more prevalent.

Republicans shouldn’t care if the U.S. spends more this year and less next year so long as the permanent size of the government remains the same.

Maybe there wasn’t disagreement between Democrats and the Republicans of yesteryear, but the Tea Party Republicans from 2010 and 2012 would beg to differ. These are the people who would rather jeopardize the health of children than provide the poor with assistance.

If any good has come out of the last 5 years, it’s that there will be a solid case for  stimulus and stabilizers the next time we have a severe recession.

Boeing using robots to make more planes with the same amount of people

Speaking of machines doing increasingly more complex tasks, it turns out that Boeing is now using robots to paint the wings of its massive 777s. Unsurprisingly, they’re way better at it than humans are:

Manually, it takes a team of painters 4.5 hours to do the first coat. The robots do it in 24 minutes with perfect quality. Boeing began using the machine in February. By midsummer, all 777 wings will be painted this way.

Both the head of the of the 777 program and the director in charge of their manufacturing were quick to point out that no one was laid off because of the robots, but the reality is that more work being done with fewer people means fewer jobs to go around.

The United States is the wealthiest country in the world, but your average person wouldn’t know that: median wealth in America is less than 1/3 of that in countries with lower inequality

It’s A “0.6%” World: Who Owns What Of The $223 Trillion In Global Wealth:

Interestingly, the ranking by median wealth is slightly different, favoring countries with lower levels of wealth inequality. As was the case last year, Australia (USD 195,000) tops the table by a considerable margin, with Japan, Italy, Belgium, and the UK in the band from USD 110,000 to 140,000, and Singapore and Switzerland with values around USD 90,000. The USA lags far behind with median wealth of just USD 55,000.

Pathetic. This is the result of having inequality comparable with Uruguay and the Phillippines. I mean really – here’s some countries we’re worse than: Iran, Nigeria, and Uganda. China has greater income equality than the United States!

What will we do when all the jobs are gone?

After Your Job Is Gone:

Do you have a job? Do you like having a job? Then I have some bad news for you. The Guardian is worried “today’s technologies are going to remove people from economic activity completely.” Techonomy says “America’s real worker crisis is not immigration, it is jobs.” Om Malik asks: “People talk about robot-helpers and an army of drones, but…what is going to happen to millions of people who will be replaced by those drones and robots?”

Wrong tense: the right question is what is happening.

An excellent article by Jon Evans for TechCrunch.

Machines and the software that runs them are going to make most workers completely unnecessary over the next few decades. So what will we do?

It’s not like everyone can be a programmer or an engineer – hell, even those can be automated to a degree. Are we going to have a moderately-taxed classed of super-rich that finances a “basic income” (or in libertarian terms, “negative income tax”) for everyone else?

Or are we going to let millions struggle for the few jobs that are left until we go through some kind of global revolution that sends us back to the Dark Ages?

Eliminate used games, lower prices, make more money

Study: Killing Used Games Could Be Profitable, or Suicide | Game|Life | Wired.com:

The study found that if the used game market were to be eliminated and nothing else changed, game publishers’ profits per game would drop by about 10 percent. However, it found that if game publishers were to adjust the prices of new games to optimal levels, they could expect profits per game to rise by about 19 percent.

“We find that the optimal price would be on average about 33% lower than the current price level, if the used game market were eliminated,” said Ishihara in an email. “So roughly speaking, in the US, game prices should go down to about $40.”

I’ve only purchased one game at $60 in recent memory, and that was SimCity (a decision I’d regret if I hadn’t gotten Mass Effect 3 for free – the multiplayer is addicting). At $40, I definitely wouldn’t feel bad about buying a new game every month or two.

Why is Robert Reich calling for tighter monetary policy?

Robert Reich (A Story for May Day: The Fed, Apple, and Trickle-Down Economics):

The Fed’s policy of keeping interest rates near zero is another form of trickle-down economics.

For evidence, look no further than Apple’s decision to borrow a whopping $17 billion and turn it over to its investors in the form of dividends and stock buy-backs.

[…]

It would be one thing if Apple and other giant companies were borrowing in order to expand operations and create new jobs. But that’s not what’s going on. Apple, remember, is still sitting on $145 billion.

[…]

It’s a sump pump with the Fed on one end buying up bonds to keep interest rates low, and shareholders on the other end raking in the returns. 

Get it? Easy money from the Fed can’t get the economy out of first gear when the rest of government is in reverse. 

The reason that Apple is borrowing is that they can pay ~2-3% interest on the bonds they issue or they could pay a ~35% corporate income tax on the money they bring in from overseas. Apple is so absurdly profitable and has such an ungodly huge cash pile that it can afford to go with the first option.

Apple has become a company where the best option for its shareholders is to rack up billions in debt. 

Reich implies that Apple is somehow in the wrong for doing this for its shareholders rather than to “expand operations and create new jobs.” I fault his logic:

1. It’s not like Tim Cook and Co. are doing this because “greed is good.” In case you haven’t notice, Apple’s stockholders have taken a beating since September of 2012. Falling from over $700/share to below $400/share makes the average investor (and most “analysts” or as I like to call them, idiots) worry about the competency of the leadership of a company. Even as CEO, you can be fired. Apple’s executives have a fiduciary duty to bring value to shareholders, and this is a very mathematically sound and entirely legal way to do it.

2. Apple is a consumer electronics company that makes what are considered the best devices year-in and year-out. I get that Reich is trying to use this to talk up creating jobs, but there are only so many people qualified to work at Apple. With unemployment for software engineers at 2.2%, how many people does Reich think are out there that have the experience needed to work on the hardware and software from which Apple derives its reputation for quality? If anything, this seems like it would only cause a bidding war in an industry that already has amazing salaries and benefits at top companies – which would concentrate wealth upwards, which is exactly what Reich is arguing against.

Besides the whole Apple nonsense in the article, the underlying issue that Reich fails to address is the corporate income tax in this country. Companies like Apple would rather borrow than pay the 35% rate. Reich implies that the Fed holding down interest rates is what makes this feasible, but again, I find faults in his logic:

1. Apple borrows so damn cheaply because it’s basically the best borrower and lender could ask for – it’s predictably profitable and has $145 billion in cash. I’d trust my money with Apple over the US government any day. Tighter monetary policy wouldn’t do much to change that. If anything, it would cause lenders to move from “risky” things like small businesses that create jobs to “safe” bets like Apple. Still kind of arguing against yourself there, Bob.

2. Econ 101 (well, Econ 1 at Berkeley) tells us that tighter monetary policy (raising interest rates) means slowing down the economy. Are the “mere” billions in tax revenues this would bring in from companies with cash held abroad be worth the havoc this would unleash on the economy? The corporate income tax is 35% – interest rates would have to be pretty high for borrowing to look less appealing than that. Higher interest rates hurt everyone that Reich claims to be fighting for – from those struggling to afford homes of their own to small businesses trying to hire and expand. 

I think the real issue that Robert is trying to hide behind the trickle-down straw-man is that the corporate income tax is pretty high. Personally, I’d like it to be lowered to the point where it brings in actual revenue and the smart move for companies isn’t to throw away money by taking on debt.