Economics, The Welfare of The Poor And Middle Class OR The Numbers Game

Last night I was at the Hoover Institution.  It was the inaugural talk on public policy, a new thing they will be doing.  You can follow the conversation on Twitter at #policyed.  Economist Russ Roberts gave the presentation.  If you don’t know him, he produces the Econ Talk podcast which I really like. The topic of this particular presentation was “Is growth good for everyone or just the top 1%? Does growth reduce poverty? How is the middle class really doing over the last 40 years?”

It’s a pretty interesting topic when you get into it.  There is a lot of discourse in our mainstream lives about how the poor and middle class are doing.  Politicians have demonized the “1%”.  Many of the US public policies enacted as far back as The New Deal were designed to help people get out of poverty.  Are they working?

Roberts produced two videos which are great to view. They will help you get over your confirmation biases. He is going to be producing more videos for this series that include topics like race, immigration, and technology development. Those two topics alone can muddle the numbers. Each video is about 8 minutes long. You might have to watch them more than once, or pause them to think about the data that is presented.

Video 1.

Video 2.

When you see data presented by economists, understanding how it is presented and what they are including in the data and what they are excluding is as important as the conclusions they come up with. Nobel Prize winner Paul Krugman presenting average income data and presenting it with a conclusion that people are essentially worse off in 2017 than they were in 1967 is simply fallacious and not good economics. However, for followers of Krugman and people with confirmation biases that seek out information to confirm those biases the data and conclusion are great. They solidify positions that they already have. That’s good for politicians but particularly bad for public policy.

If we are being honest, answers are significantly more nuanced. The numbers are super hard to measure. However, some iron laws of economics always apply. For example, if you subsidize something the price of it will eventually go up. If we look at a public policy like minimum wage and basic income that has big effects. Subsidizing a minimum wage causes ALL wages to go up and just raises the bar on what the minimum should be. Subsidizing basic income would cause all income thresholds for everything to go up. Policies like this are government mandates injecting themselves into activities that probably should be market driven.

If we look around the entire economy, we subsidize lots and lots of things. Education, housing, food, medicine, employment, retirement and some units of production all have subsidies. That causes market disruption. The subsidies can also lead to crony capitalism which leads to a total distrust in market systems.

The broader conclusion is that since the 60’s, the poor and the middle class are doing better in the US. However, they aren’t doing as well as they could be doing. It’s also important to note that what public policy should do is not focus on outcomes. It should focus on making sure there is the opportunity.

An aside. I am spending a month in the San Francisco Bay Area. Housing prices are through the roof here. Why? Zoning laws and regulations on building for sure. However, because the entire region is fueled by entrepreneurship people will pay that price to chase an opportunity. Costs and opportunity costs matter. Sort of like why people will drop everything in a country in order to come to America. Opportunity.