rickyp wrote:ray

At the same time, you have to recognize that the US has created a system whereby education costs continue to increase at a rate much higher than inflation. It's just like health care, and it's just like housing during the bubble years. The commonality is that governments distort markets. (I'm not saying this is the only problem with these markets; however, it is a significant problem

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Government distorts markets? And thats why health costs in the US are running way ahead of inflation and are substantially more on an absolute basis than ....countries where government is way way more involved in managing health care?
When an appendectommy procedure that costs $6,600 in Canada costs $13,000 in the US, maybe that distortion is a good thing?
http://www.ritholtz.com/blog/2012/03/co ... -overseas/

It's not a linear relationship whereby the extent of government involvement corresponds to the extent of health care costs. It depends quite a bit on the type of government involvement. In the US, if a company pays for your health insurance it is fully tax deductible; however if an individual pays for health care insurance or health care costs in general it is not tax deductible. This creates 2 powerful middlemen in the health care cost structure (insurance companies and employers). Furthermore, there were wage and price controls many years ago so that companies could not increase salaries, but could increase benefits. So, yes, government involvement in health care in the US has severely influenced the marketplace.

danivon wrote:

P.S. Capitalism is essentially about the market setting prices so that we have a constant feedback system to best (albeit imperfectly) ensure that resources are devoted appropriately based on consumer value.

Ah. No. That's 'market economics'. Often people use the two terms interchangeably as if they are the same thing. They are not.

You can have capitalism with market economics, which we call 'free market capitalism' and is the ideal of the economic conservative [US definition] or liberal [European definition].

You can have capitalism without it, what is often called 'mercantilism', or 'state capitalism', which is often where European conservatives are coming from and where American liberals are going.

You can have also socialism with markets - 'market socialism' is a viable, if not particularly popular theory but it tends to be where I would move towards if I had a choice.

And of course you can haev socialism without markets - the more common view of what socialism or communism would end up being).

What we really have is not a pure variant of the options above, but it seems to be largely a capitalist economic system, with a largely free market. Given that the USSR was attempting to be a socialist system without market mechanisms, it's not a surprise that the two terms have become synonymous, but in reality they are not.

The clue as to the defnition of 'capitalism' is in the name. That name says nothing whatsoever about markets (or lack thereof).

You may be right about the "defnition" , but I was getting at the essence of capitalism which is a bit different. I was going back to your comment:

Capitalism is essentially about debt. The 'capital' is loaned to the entity that uses it to operate. Whether that loan is of direct cash, with an interest rate, or in return for part ownership, the intent is for the loaners to get more back than they put in. Shares, bonds, outstanding loans - all of these are liabilities on a company's accounts.

So, the holders of debt make money on the debts of others. In an integrated market system in which everyone is borrowing to operate, buying and selling, then it just proliferates the debt and also the effect. Those who make money from selling widgets do so because people are borrowing to buy widgets (which they then will combine with doohickeys to make a product that they the sell at profit to repay the debt).

In capitalism, debt it not a bad thing - on the contrary, it's essential.

I stand by my comment that the essence of capitalism is that you have a marketplace with a price mechanism. Even the equity and debt marketplace (how much to invest or lend and at what terms) needs to be governed by market mechanisms. This is Sass's point on government distortion by keeping interest rates low and encouraging cheap credit.

freeman2 wrote:Your theory is reasonably sounding RJ, that the government is a significant cause of why college costs have gone up so much since 1980, but there were government financial aid programs prior to 1980. The GI bill was another program that should have dramatically increased costs. I think the primary reason that costs have gone up so much since 1980 is based on simple supply and demand theory-- people realized that the economy has changed, that there are only so many good jobs, and those good jobs require a college degree at as prestigious a college as possible. When you're running a college and you start getting 10 applications for every opening, well, you stop worrying that an increase in fees will turn students away. There is a correlation between where only 20% have seen their incomes increase in the past 30 years (particularly the top 10% or 5% of earners) and the resultant increased demand for college degrees (at least at those colleges that are prestigious enough), resulting in the colleges being able to increase their tuition rates at will.

I think that you are correct that there are other influences to pricing aside from government involvement. However, I do have a few quibbles with your post. Namely

ut there were government financial aid programs prior to 1980. The GI bill was another program that should have dramatically increased costs.

The higher than market inflation has been consistent and ongoing since the GI bill. Just like with the health insurance industry, the influence of government distortion of markets can often happen gradually over a number of years.

There is a correlation between where only 20% have seen their incomes increase in the past 30 years (particularly the top 10% or 5% of earners)

We've already shown that the majority of American have seen rising income through about the turn of the century and the declining effect has only been over the last 12 years or so.

First, I found this fascinating article on rising educational costs. http://www.acenet.edu/AM/Template.cfm?S ... NTID=44773

Once of the things that I found most interesting is the discussion about increases in worker productivity and wage rates in two different eras: (1) from 1947-1973 worker productivity gains average 2.8% per year and worker wages rose 2.6%, (2) from 2000-2009 worker productivity rose 2.5% and workers wages rose 1.1%. This clearly shows in a concrete way how things have changed for the worse for the average American worker.

The article does not fined that federal aid raised costs but attributes costs other reasons. It also notes that states have contributed less to subsidize state schools and this has resulted in those school raising tuition, particularly as a result of recessions. (I can confirm this anecdotally--UCLA was $1,300 a year from 1985-1990 when I went to UCLA--now, as a result of tuition going up substantially during every recession due to reduced subsidies from the state government, tuition has gone up 1,000% since 1990 to about $15,000).

Here is another paper explaining the growth of costs. http://www.auburn.edu/outreach/dl/pdfs/ ... _Costs.pdf

This last article addresses the "growing gaps between children from high- and low-income families in college
entry, persistence, and graduation." http://users.nber.org/~dynarski/Bailey_ ... _Final.pdf

With regard to household income, I have a bit of a problem with using household income. From what I understand is that your average worker over the past 30 years basically kept with inflation, the top 20% did somewhat better, and the top5% did a lot better. But household income includes everything in the household, so people could be working two jobs, the wife could be working instead of not working, etc. To me, the focus should be on the individual worker and how he has done, because that shows how fairly wealth has been distributed. Clearly, even if you use household income American families have been struggling since 2000.

With regard to household income, I have a bit of a problem with using household income. From what I understand is that your average worker over the past 30 years basically kept with inflation, the top 20% did somewhat better, and the top5% did a lot better. But household income includes everything in the household, so people could be working two jobs, the wife could be working instead of not working, etc. To me, the focus should be on the individual worker and how he has done, because that shows how fairly wealth has been distributed.

It would be nice to have some stats here. I'm under the impression that a lot of the households that are not doing well are the result of there only being one parent in the household.

See this post that median wage of U.S male is about same as 1968. http://www.huffingtonpost.com/2011/09/1 ... 60588.html

According to this study median wages rose 11 percent in the last 30 years. http://www.epi.org/publication/what_wor ... _they_got/

And look at this comparison between increase in median income per household and the increase in GDP per household (showing how much wealth is going to the few)http://krugman.blogs.nytimes.com/2011/02/03/economic-growth-and-household-income/

Actually, I finally found what I was looking for. If you hit that table 5 in the Huffington Post article on median wages you get the census data for the past 50 years. If you look at 1980 inflation adjusted figures they are $31,567 for men and $12,395 for women; in 2010 it is $32,137 for men and $20,831 for women. So the growth in household income appears to be largely due to increases in income for women. I suspect that much of that growth income by women is simply greater participation in the work force (though women may also be getting better jobs than used to, may be facing less discrimination, etc.)

Freeman:

First, I found this fascinating article on rising educational costs. http://www.acenet.edu/AM/Template.cfm?S ... NTID=44773

Once of the things that I found most interesting is the discussion about increases in worker productivity and wage rates in two different eras: (1) from 1947-1973 worker productivity gains average 2.8% per year and worker wages rose 2.6%, (2) from 2000-2009 worker productivity rose 2.5% and workers wages rose 1.1%. This clearly shows in a concrete way how things have changed for the worse for the average American worker.

The article does not fined that federal aid raised costs but attributes costs other reasons. It also notes that states have contributed less to subsidize state schools and this has resulted in those school raising tuition, particularly as a result of recessions. (I can confirm this anecdotally--UCLA was $1,300 a year from 1985-1990 when I went to UCLA--now, as a result of tuition going up substantially during every recession due to reduced subsidies from the state government, tuition has gone up 1,000% since 1990 to about $15,000).

Here is another paper explaining the growth of costs. http://www.auburn.edu/outreach/dl/pdfs/ ... _Costs.pdf

I was able to access your first link, but not your second. I think you should be cautious of this study. Here is the bio of the authors:

Bryan J. Cook is the director of Ace’s center for Policy Analysis. Terry W. HarTle is the senior vice president of Ace’s division of Government and Public Affairs.

Divisions of Governmet and Public Affairs are lobbyists. From ACE's website:

Founded in 1918, the American Council on Education (ACE) is the only higher education organization that represents presidents and chancellors of all types of U.S. accredited, degree-granting institutions: community colleges and four-year institutions, private and public universities, and nonprofit and for-profit colleges. ACE represents the interests of more than 1,600 campus executives, as well as 200 leaders of higher education-related associations and organizations. Together, ACE member institutions serve 80 percent of today's college students.

In its role as the major coordinating body for all the nation's higher education institutions, ACE provides leadership on key higher education issues and influences public policy through advocacy, research, and program initiatives.

I'm not saying that the article is right or wrong; I'm just saying that these are not independent voices by any stretch of the imagination.

freeman2 wrote:See this post that median wage of U.S male is about same as 1968. http://www.huffingtonpost.com/2011/09/1 ... 60588.html

According to this study median wages rose 11 percent in the last 30 years. http://www.epi.org/publication/what_wor ... _they_got/

And look at this comparison between increase in median income per household and the increase in GDP per household (showing how much wealth is going to the few)http://krugman.blogs.nytimes.com/2011/02/03/economic-growth-and-household-income/

Actually, I finally found what I was looking for. If you hit that table 5 in the Huffington Post article on median wages you get the census data for the past 50 years. If you look at 1980 inflation adjusted figures they are $31,567 for men and $12,395 for women; in 2010 it is $32,137 for men and $20,831 for women. So the growth in household income appears to be largely due to increases in income for women. I suspect that much of that growth income by women is simply greater participation in the work force (though women may also be getting better jobs than used to, may be facing less discrimination, etc.)

I think you are saying that the entrance of women into the workforce with more equality of opportunity is depressing the wages of men. This is consistent with the basics of supply and demand. Similarly more trade with China would have the same effect. I personally think it is good that women have the option to enter the workforce to a greater extent; I also think it is good that China is finding a path to prosperity.

By the way, from one of your source's website:

The Economic Policy Institute’s mission is to inform and empower individuals to seek solutions that ensure broadly shared prosperity and opportunity.

About EPI. The Economic Policy Institute (EPI), a non-profit, non-partisan think tank, was created in 1986 to broaden discussions about economic policy to include the needs of low- and middle-income workers. EPI believes every working person deserves a good job with fair pay, affordable health care, and retirement security. To achieve this goal, EPI conducts research and analysis on the economic status of working America. EPI proposes public policies that protect and improve the economic conditions of low- and middle-income workers and assesses policies with respect to how they affect those workers.

I think they have a valid place in our society and welcome their view and research. But there is a basic contradiction when they call themselves "non-partisan" in their mission statement and at the same time detail their partisan views on fair pay, health care, and retirement.

The Krugman article is consistent with what I've been saying: even though income distribution has gotten worse, median income has increased since 1973. If you want to focus on the disparity (as is Krugman), then I still think you are focussed on envy which is how much other people have in relation to me. However, if you want to focus on absolute well being, the median income suggests increases for the average family or household since the Nixon or the Reagan years, although I fully agree that the decline in the last 12 years is problematic.

Do you know how Krugman handles health care benefits (both company and government provided) in his comparisons? That may move these numbers quite a bit, by the way.

Again with the envy, RJ?

It is not just about envy. Think about it - productivity has gone up, and faster than wages. That means that the average worker is producing more than they used to, but are not getting as much of a share of the reward for doing so. The 'envy' comes in if they note that there are above average people who are getting a greater share, but that's not jealousy so much as resentment that those who are nearer to the top, who are most influential in how the system runs are the ones getting most out of it, while those lower down, who may argue that they actually 'do' the work rather than just 'manage' it are not.

To say that's just about envy is bordering on being an insult.

Are you saying that resentment is a better word for it than envy? I'm comfortable with using the word resentment if that's more acceptable to you.

Ha ha.

If someone does you down, and you dislike them for it, resentment is not a terrible description. Envy comes along with the implication that you are just jealous of what the other guy has. What one of the 10 commandments was referring to in outlwing covetousness. I don't think God/Moses were interested in outlawing the resentment of theives and hoarders.

But to use a less emotional descrption, how about 'recognition of unfair advantage'

I'm not trying to be funny or biblical. (You are projecting my intent.) I'm genuinely just trying to give it a term. We have established that people on the top are doing relatively better than they used to relative to people on the bottom. We've also more or less established that the median household is doing better than it did in the 70's and 80's, but worse than it did in the 00's.

You are focused on the disparity as opposed to the absolute value. That's fine. What do you call that focus?

But to use a less emotional descrption, how about 'recognition of unfair advantage'

two questions:

1. why do you think the word "unfair" is unemotional. It seems to me to be an extremely emotional word (especially when my kids say it).
2. Have we established that the disparity is unfair?

1. I didn't say 'unemotional', I said 'less emotional'. While kids may use the word with passion, that does not mean we have to.

2. I doubt that we can completely agree that it is. I would argue that the agglomeration of wealth around the wealthy, harnessing the productivity of everyone but keeping most of the benefit to themselves is not fair. I would argue that the concentration of power, financial and political, in the hands of a small proportion enables them to skew the 'rules' in a way that disbenefits the majority, and that is not 'fair'.

3. In answer to your first question, I would call it 'awareness of reality'. You do of course realise that comparing with each other is a pretty fundamental human trait. It's one of the prime movers of a consumer culture - keeping up with the Joneses - so let's not pretend it's some new lefty idea to sow discord. Still, it's not just about observing that others are richer than you, it's about observing why the gap is changing. If it is believed that the rich are getting richer on merit, then I doubt there'd be an issue. However, if it appears that it's not just down to hard work and talent but also luck, exertion of power, nepotism, exploiting influence, cosy deals with politicians, using the efforts of others, avoiding responsibility for error, or other means, then there'd be a different basis for what you call envy.

Of course there are those so convinced that the system is meritocratic that they use the reverse reasoning that the rich are rich because they merit it and the poor are poor down to their own 'Bad Life Choices'. I would hope we can take a more sceptical approach.

ray

Have we established that the disparity is unfair?

Without worrying about :fairness" we can establish that when disparity reaches the levels seen today, there are established effects on society:
- increased crime
- increased social unrest
- shorter life spans
- increased mental health problems in the general population
- increased public health issues
- degradation in the quality of the labour force
- degradation in the quality of education
-degradation in shared services like the quality of the water or power systems...

So whether or not its fair..... it doesn't produce a healthy society.
Or at least what has been seen to be a healthy society. Generally its said that the period from 1945 to at least 1980 and probably into the late 90s, is a period when America prospered and people thrived. That tends to correlate with the growth of the middle class. Its also the period when income and wealth disparity was low, compared to today or in the roaring twenties or the gilded age.
It is not coincidental now that income disparity is at a zenith, and now that debt and the degradation of services are ocurring due to constraints on the public purse .

I disagree with you Ricky--Danivon has it right. It's about unfairness. When workers get better, when they get more productive, when they produce more wealth they should get some reasonable percentage of the wealth created. Yes, there should be reasonable returns on capital but when you see massive shifts in wealth distribution from the average workers over to the privileged few you are talking about the seeds of social unrest.

And I also agree with Danivon that envy is not the appropriate word. Even resentment is not appropriate because it is an emotional response. Workers are entitled to get some reasonable percentage increase brought about because of their increased productivity. I think the right word is "exploitation"