Thursday, July 22, 2004

BS Alert: Greenspeak Veers Into Blame Game

The WaPo covers the story where Greenspan blames the failure to grow high quality jobs on the lack of worker skills rather than that the economy is producing mostly part-time jobs.

Thursday, July 22, 2004; Page A01

Federal Reserve Chairman Alan Greenspan, disputing election-year assertions that the U.S. economy is producing lower-quality jobs than it has in the past, said yesterday that continuing wage sluggishness reflects the fact that many workers are ill-prepared to take advantage of the opportunities that the economy offers.

Growing U.S. income inequality largely reflects differences in workers' education and job skills, not an underlying problem with the economy, Greenspan said during a House Financial Services Committee hearing, echoing many of the remarks he made before a Senate committee the day before.

The growing pay gap reflects the "skill premium" commanded by relatively higher-educated, better-trained workers, and represents "a major problem of matching skills of workers to the technological base of the economy, which I believe is an education issue and requires that we address that as quickly and broadly as we can."

Hmmm... is Greenspan right? Is it a failure to produce an educated workforce that is dogging us? Perhaps in a few specialized fields, but it is hard to imagine that this is a case when the Census Bureau reports that more people are becoming educated than ever.
Posted July 6, 2004
By Chris Gaetano

A U.S. Census Bureau report revealed that in 2003, 85 percent of people 25 and older had at the very least completed a high-school-level education...

One explanation for the rise in graduation rates may be the growing perception of increased earning power acquired through higher education. On average, people with high-school and higher educational degrees tend to have much higher incomes than people who don't. In 2002 the average income for those who did not graduate from high school was $18,826. Graduating high school increases the average income by almost 50 percent to $27,280. With a college degree, this number further increases to an average income of $51,194.

"There's a lot of evidence that people who have degrees make more than people who don't, and people who graduate from college make more in the same jobs, so the income level of people increases proportionate to how much education you have," said Emily Feistritzer, founder and president of the National Center for Education Information.

According to the census report, college graduation rates are also at a record high. In 2003, 27 percent of people 25 and older had completed college. [emphasis added]

Now I would be the first to encourage people to become more educated. However graduation rates have grown, but the employment situation has not improved. It doesn't help if you produce more educated people but you aren't creating jobs that demand their skills. Quite the contrary, the oldman is leaving the field of physics at least in his present job in academia because he can no longer consider a career in it financially viable given the career field dynamics. Other people in information technology and other fields feel the same way the oldman imagines. As a matter of fact, a recent study conducted indicates that graduation rates may be artificially low with many students later obtaining a bachelor's degree after transferring schools.
Mr. Adelman's study shows that the inability of state and federal government officials to track students across state lines makes it nearly impossible for the federal government to get an accurate count of graduation rates. In his report he notes that of the 20 percent of students who earned a bachelor's degree from a different four-year college than the one in which they started, almost half moved to institutions in other states.

As such the artificially low (college) graduation rates provide a convenient scapegoat for Greenspan. The reality is that it is not a supply problem, but one of demand. Kling has disingenuously suggested (Oldman comment) that we are richer because we have a greater prevelance of consumer goods in our homes. Billmon debunks this by showing that the prevailing wage trends have decreased, but our personal consumption has increased because we are working more and more members of our family are working.
Several readers expressed a certain incredulity over a statistic I used in my last post: the 17% drop in real U.S. wages between 1972 and 1992...

The timing, admittedly, exaggerates the magnitude of the drop, since it starts from the peak of the extremely artificial Nixon boom of the early '70s (the period which put the "wage" in wage-price spiral) and the doldrums of the early '90s, when the U.S. economy was still busy recovering from the excesses of Reaganomics. But even accounting for those partial distortions, the wage trend was extremely dismal for a the better part of a generation.

The obvious question - and the source of some of the incredulity - is how this contraction in purchasing power can be reconciled with the rise in household income and the unquestioned increase in material living standards since the early '70s. American workers may not exactly be rolling in the lap of luxury, but they also haven't been reduced to the same wretched condition as the Joads in the Grapes of Wrath - at least, not yet.

The answer, of course, is that the chart only tells part of the story. It doesn't cover salaried employees, who generally fared much better than hourly workers in the '70s and '80s (the golden age of middle management). It also doesn't cover commissions or bonuses. Nor does it include the rapid growth in non-cash benefits - such as employer-paid health insurance, which chewed up an enormous share of compensation growth in the late '80s and early '90s (until the Clintons put the fear of Hillary into the health care industry).

But most of all, it doesn't show the massive influx of women into the workforce in the '70s and '80s - a social trend which turned many, and then most, U.S. families into dual-income households. That's primarily were the money came from to support the steady rise in personal consumption - that plus ample amounts of personal debt.

In that sense, the downward trend in wages shown above was actually a capitalist success story - by making workers cheaper, it helped the labor market absorb not just the baby boomers, but also the surge in working wives and mothers, despite severe economic disruption and generally disappointing growth.

But the trick of boosting household income by sending more family members out into the workforce can't be repeated...

Billmon also documents how non-other than the Wall Street Journal takes apart Greenspan's idea that it is somehow not the economy and political policies at work, but a stunning lack of American diligence in pursuing education that is at work. From the WSJ:
Upper-income families, who pay the most in taxes and reaped the largest gains from the tax cuts President Bush championed, drove a surge of consumer spending a year ago that helped to rev up the recovery. Wealthier households also have been big beneficiaries of the stronger stock market, higher corporate profits, bigger dividend payments and the boom in housing.

Lower and middle-income households have benefited from some of these trends, but not nearly as much. For them paychecks and day-to-day living expenses have a much bigger effect. Many have been squeezed, with wages under pressure and with gasoline and food prices higher. The resulting two-tier recovery is showing up in vivid detail in the way Americans are spending their money.

Combined with the problems of the lack of parity between the executive compensation and the weak jobs' market this has tangibly made Americans poorer for the most part without fixing the underlying economy. Greenspan has gone to daunting lengths to ignore information counter-factual to his thesis. His most recent one previous to this was where he ignores data that indicates that the period of low interest rates has not repaired the long-term state of American household balance sheets.

Now Greenspan is blaming supply for a problem with structural demand. At this point the excuses are becoming disgusting. I have no idea what Greenspan is doing, other than covering his own ass. Like the aspect of denial over the deteriorating Iraq situation even as the military runs out of money and soldiers can't go home even after two years and how they're running out of bullets, Greenspan is ignoring all the danger signs and describing a Panglossian view of the economy that is not only rose-tinted but outright fraudulent. It's just crummy though that he has to blame Americans, who in his view are apparently so clueless that they don't get that they should become more educated in order to make more.


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