Malartu, My Other Project

This is only tangentially related to economics, but I’m pretty excited about some coverage I got for my other project (besides blogging here and teaching at LCC).  If you teach in higher education yourself, you might be interested.  If so, contact me.  The article is from Converge Magazine yesterday:

Economics Professor Starts Designing Tools for Faculty That Meet Their Needs

By Tanya Roscorla
on November 21, 2011 Policy

While vendors make plenty of technology platforms and services that serve students, most of them don’t meet professors’ needs, according to the experience of Jim Luke, an economics professor from Lansing College.

They require a major time investment and make professors’ jobs harder, he said.

“Just in 10 years the amount of time and work it takes to be a good teacher has just really skyrocketed, and a good bit of it is because of the software and the systems. They are not friendly and easy to use.”

While billions of dollars pour into campus enterprise technology and services for students, few people look at the teacher’s job. And few people create tools for teachers that they need.

For these reasons, Luke decided to start a nonprofit called Malartu Inc. While projects exist in the early stages, he hopes that the tools he envisions will help professors be more productive and effective.

Please read the rest of the article here as it describes our plans for TheProfNet and Curriculum Intelligence.

Income Distribution Does Matter. It’s Wrong Now and Stopping Growth.

When people think about “income distribution” there’s a tendency to think of it only in terms of what different people or households have available to spend.  In other words, we focus on the fairness or equity of whether some households should only have a small amount of money to live off of vs. others who get a large amount of money to live off of.  The debates then often deteriorate into whether or not the households put forth effort (“worked”) for their income and therefore “earned” it.

But there’s more to the issue of income distribution.  A household’s income is not just determined by how much “effort” it’s willing to make or how much “investment” it’s made in the past.  So a household’s income isn’t just how much you work and what education/qualifications you have.  The general level of wages matters too.  And that’s determined at the macro level by institutional arrangements in society.

The nature of production is that it requires both capital and labor.  The joint product is then sold.  This is called productivity.  Part of the income distribution question is “how is the value from joint productivity split up between payments to capital and payments to workers”.

In the U.S. during the Golden Era, the period of World War II until the mid-1970’s, the social contract and institutional arrangements were that the benefits of increased productivity were split evenly between both capital and labor.  Both benefitted.  Starting around 1980 that deal was cancelled.  The social contract has increasingly moved to all gains from improved productivity going to capital and none to labor.  As a result, labor’s share of national income has consistently declined.  The Great Recession was a major blow.  It’s this change in the social contract that is the root source of the frustration and pain felt by so many households.

Garth Brazelton at Economics Revival explains why this matters now.  He explains why we are still in a recession, or at least why the 90% or so of us that work for  a living as opposed to living off of interest and profits are still in recession:

Who cares about double-dip. We never left. Why? because you can’t get out of a recession without consumers/labor income growth. While productivity has grown over the last few years, labor’s share of national income continues to plummet. This implies that others (capitalists / profit-makers) are ‘out of their recession’ but consumers and laborers are not.

The BLS has a nice publication here.

Ordinarily a low cyclical labor share isn’t necessarily a problem because firms can use profits to invest in new business ventures a eventually lower the unemployment rate and provide more compensation in a recovery. The problem here of course is that firms are too busy paying off past debts from poor decisions made a decade ago, or two skittish to do anything substantial with their profits at the moment. So that, in combination with the low labor share of income is like a double-whammy for consumers and laborers who see the haves continue to have and the have-nots continuing to have nothing.

The Depression in Wages: End of the American Dream

It’s not just the lack of jobs that’s hurting workers.  Even those workers who have jobs are suffering from a historic lack of wage growth. Workers’ wage growth over the last ten years has been lower than even the Great Depression.  The American dream of “doing better than Dad did” is effectively over. For the current generation (and the most recent), to do “as well as my parents” is now an ambitious goal.

n article by Jed Graham in Investors Business Daily yesterday documents the sad facts:

The past decade of wage growth has been one for the record books — but not one to celebrate.

The increase in total private-sector wages, adjusted for inflation, from the start of 2001 has fallen far short of any 10-year period since World War II, according to Commerce Department data. In fact, if the data are to be believed, economywide wage gains have even lagged those in the decade of the Great Depression (adjusted for deflation).

Two years into the recovery, and 10 years after the nation fell into a post-dot-com bubble recession, this legacy of near-stagnant wages has helped ground the economy despite unprecedented fiscal and monetary stimulus — and even an impressive bull market.

Over the past decade, real private-sector wage growth has scraped bottom at 4%, just below the 5% increase from 1929 to 1939, government data show.

To put that in perspective, since the Great Depression, 10-year gains in real private wages had always exceeded 25% with one exception: the period ended in 1982-83, when the jobless rate spiked above 10% and wage gains briefly decelerated to 16%…

That excess supply of labor has given employers the upper hand in holding back wage gains.

The causes are numerous: poorly conceived macroeconomics policies; disastrous deregulation of the financial industry; trade, monetary, and tax policies that encourage imports over domestic production; a thirty-year war on unions; etc.

The point I want to make here is how momentous this change is for the American political and economic system.  One of the dominant features of America in the last 200 years was the idea of the American Dream.  Anybody who worked hard, followed the rules, and showed initiative could get ahead.  For several generations in the 20th century that was true.  Almost every worker could reasonably expect to do much better than their parents did.  In the early 20th century much of the growth and improvement in living standards was the result of new inventions, technology, and infrastructure investment.  In the mid-20th century, the promise was a social contract that as productivity improved, both workers and capitalists would benefit.  That period is over. Now when productivity improves, corporate profits get the benefit but employees don’t.

When wages were increasing 25% or more every ten years, it meant that a after a 30 year period, the length of roughly one generation, that wages will be 1.95 times what they were at the beginning.  It’s no wonder that the generations who grew up after World War II came to expect every son (or daughter) should do better than their dad did.  They could reasonably expect to have double the real income their parents had – and that’s assuming they stayed at the same level on the income scale.  Now given the performance of the economy in the last ten years, wages will barely increase by 12-16% after 30 years.  No automatic “doing better than dad” just by participating in the American economy.

Actually, it’s much worse than that. For most Americans, to simply achieve the incomes their parents had means to have more education than their parents.  And during this period of slowing wage growth, we as a nation have also decided that workers should pay more of the cost of their education.  We saddle them with student loans. In previous generations, such as the 1950-60’s, higher education was subsidized directly by the government and student loans were a very minor part of the scene.  In some states such as California tuition was free. Now the younger generation must acquire more education than their parents and take on debt just to achieve relatively the same income as their parents.

It doesn’t have to be like this.  The trend could be changed.  It’s largely a political and social choice made by society.  But there appears little on the political horizon at this time that appears interested in reversing this “end of the American dream” dynamic of the last decade.

Macroeconomic Productivity Measures Don’t Really Measure Productivity

Macroeconomic productivity measures don’t really measure productivity.  These measures, which purport to measure how much output is created per worker in the U.S. are actually pretty faulty.  Unfortunately this leads to poor polices and a mis-reading of what’s really happening.  From the the NYTimes:

FOR a quarter-century, American economic policy has assumed that the keys to durable national prosperity are deregulation, free trade and a swift transition to a post-industrial, services-dominated future.

Such policies, advocates say, drive innovation, which leads to enormous labor productivity and wage gains — more than enough, supposedly, to make up for the labor disruptions that accompany free trade and de-industrialization.

In reality, though, wage gains for the average worker have lagged behind productivity since the early 1980s, a situation that free-traders usually attribute to workers failing to retrain themselves after seeing their jobs outsourced.

But what if wages lag because productivity itself is being grossly overstated, especially in the nation’s manufacturing sector? Then, suddenly, a cornerstone of American economic policy would begin to crumble.

Productivity measures how many worker hours are needed for a given unit of output during a given time period; when hours fall relative to output, labor productivity increases. In 2009, the data show, Americans needed 40 percent fewer hours to produce the same unit of output as in 1980.

But there’s a problem: labor productivity figures, which are calculated by the Labor Department, count only worker hours in America, even though American-owned factories and labs have been steadily transplanted overseas, and foreign workers have contributed significantly to the final products counted in productivity measures.

The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change.