The impact of Brexit continues to roil and rumble. Paul Krugman say’s it’s not that big a deal—well, not unless you live in the UK itself, where “it looks all too likely that the vote will both empower the worst elements in British political life and lead to the breakup of the UK itself.” So, if you do happen to be a British citizen, you’re pretty well fucked. And, adds Paul, if you’re a citizen of any of the other (current) EU countries, you’re pretty well fucked as well. In fact, you’ve already been fucked. As Paul charmingly puts it “At the European level, in other words, I would argue that Brexit just brings to a head an abscess that would have burst fairly soon in any case.”
But us Yanks, we’re pretty much home free, right? I would say, not so much. In an earlier post, I agreed with all the nasty things Paul had to say in one of his earlier posts about the learned-nothing, forgot-nothing bureaucratic elite that runs the EU, using Paul’s cudgel to cudgel himself for not recognizing the blindness of our elites, specifically their continuing obsession with the environment, which has led, among other things, to the banning of fracking in both California and New York State.1 Now I’d like to extend that critique to other areas.
The great touchpoint across “the West” since the Great Recession has been economic nationalism, whose American abscess was brought to a head during the 2016 presidential primaries, when both Donald Trump and Bernie Sanders rose to extraordinary prominence pushing varying brands of economic populism from the left and right. Economically, I think Trump and Sanders are wrong on just about everything. But how do we lance the boil of economic unfairness that has engendered their rise?
Both Trump and Sanders have made a very heavy pitch regarding the decline of manufacturing, which both essentially attributed to “China.” All of the studies I’ve read say that employment in manufacturing remained relatively constant in the U.S.—in terms of numbers though not percentage of the workforce—until around 2004. The effects of the decline were masked by the expansion of employment in construction resulting from the boom in housing, which of course cratered after 2008. Since then, manufacturing jobs haven’t come back, and neither has any comparable form of employment.
The particular mystique of manufacturing jobs lies in the notion that these jobs pay well but don’t require much education or skill. But why should an unskilled job pay well? In fact, these jobs require an extensive knowledge base that could be acquired informally by virtually anyone growing up in the northern U.S. or western Europe throughout the 20th century but was a closed book to people living anywhere else.2 Those days are past. And what the rising capability of foreign workers hasn’t taken away, productivity increases have—and, contrary to some, I think there are plenty of “miracles” to come. The simple fact is, no one’s going be paid $25 an hour to drive a fork-lift truck in the very near future. America’s great Great Lakes industrial arc, which once stretched from Duluth to Buffalo—and even further east, along the Erie Canal—will continue to shrivel, as it has for the past forty years.
But has the Great Shriveling been a disaster? There’s good reason to believe that it isn’t, the Great Contraction to the contrary notwithstanding. The Washington Post’s Robert Samuelson points us to this study by Stephen J. Rose of the Urban Institute, which finds that everyone—everyone except the bottom 6 percent of the income distribution—was better off in 2014 than in 1979:
“Between 1979 and 2014, the upper middle class more than doubled in size, from 12.9 to 29.4 percent. While the share of the rich grew by 1.7 percentage points, there were sizable declines in each of the lower three groups, with the poor and near-poor falling from 24.3 to 19.8 percent, the lower middle class from 23.9 to 17.1 percent, and the middle class from 38.8 to 32.0 percent.”
All of this correlates nicely with an elaborate spread the New York Times ran last year, which I dissected here, noting that the data say pretty much the opposite of what the Times say they say, namely, that, even taking into account the worst economic contraction in living memory, things are basically getting better all the time. So why aren’t people happier than they are?
A couple of things. First of all, prior to the 2008 smash, a lot of people felt flush because housing prices seemed to be on a continuous vertical rise. When you feel flush, you spend flush. People aren’t spending that way any more. Another thing, also birddogged by the well-nigh indefatigable Robert Samuelson, a study on earnings inequality by Mark Warshawsky at the Mercatus Center at George Mason University. Warshawsky attributes some of the rising income inequality in the U.S. to the disparate impact of the rising costs of employer-provided health insurance: rising insurance costs take a bigger bite out of the “total raise” of lower level employees as compared to higher ones, so that the take home disparity between the two groups increases over time.
And one more thing: the high cost of housing, driven up in desirable living areas by a variety of “screw the new guy” measures that reward existing property owners at the expense of everyone else, a phenomenon nicely discussed by Bloomberg’s Justin Fox in “Urban Living Becomes A Luxury Good”. Fox cites a paper by Chang-Tai Hsieh and Enrico Moretti) which says that reducing geezer-friendly restrictions on housing in New York, San Francisco, and San Jose alone would boost the U.S. Gross Domestic Product by 9.5%.
However, in areas like the Midwest, the Deep South, and Appalachia, the good times, such as they ever were, probably aren’t ever coming back. Shockingly, a lot of people just need to move. Unfortunately, moving is scary. As noted above, the places where the jobs are aren’t necessarily the places where the apartments are. If you’re receiving state assistance of any kind, changes in eligibility and the difficulties of re-enrollment can be intimidating.
If we could break the monopoly over health-care delivery maintained by the American Medical Association over the past several centuries, so that more services were delivered by $75,000 a year nurses instead of $150,000 a year doctors; if we could make it easier to patent drugs and harder to exploit existing patents; if we could abandon “smart growth” and rent control and height restrictions3; if we could make it easier to move; if we could allow fracking in New York and California; if we could do those things, well, it would be a start.4
- Meanwhile, Bernie Sanders, the working man’s friend, is mad because the Democrats won’t promise to ban fracking nationwide. ↩︎
- It’s very easy to imagine someone who’s never seen a car to think that you could “stretch” gasoline by adding water to it, or that you could substitute diesel fuel and gasoline for one another in a pinch. In the U.S., of course, any “idiot” would know not to do that. ↩︎
- A few blocks from where I live, someone turned a two-story row house into a five-story row house. You will probably not be surprised to know that that will never happen again. Because none of my neighbors should have a house that is significantly worse than mine, and none of them should have a house that is significantly better than mine. ↩︎
- I earlier made some of the same suggestions here ↩︎
