Posts Tagged ‘United States’

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Back in 2014, in a post on inflation, I revealed my suspicion that

the real rate of inflation for consumer goods is higher than the official rate of 2.2 percent (over the past 12 months), thereby understating the extent to which working people are facing rising prices for the commodities they need to purchase in order to maintain themselves and their families.

Well, as it turns out, I was right. According to some recent research by Xavier Jaravel, the rate of inflation faced by high-income households is lower than for low-income households.

Why’s that? Because, with rising inequality, firms in the retail sector introduced more products catering to high-income consumers, and competitive pressure in that segment of the market drove down the prices of those products.

And why does it matter? Well, for one, any overall measure of inflation (like the Consumer Price Index) tends to understate the rate of inflation facing low-income consumers. That’s the point I made back in 2014.

The other implication is that, because households with different amounts of income face different prices for the goods they consume, economic inequality is actually worse than we thought.

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So, here we have another vicious cycle: nominal economic inequality leads to different rates of product innovation (thus leading to different levels of consumer prices), which in turn worsens the degree of real inequality.

That vicious cycle of escalating inequality is, unfortunately, part of the normal workings of our current economic institutions.

 

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I was perplexed. I couldn’t figure out what all the fascination was with self-driving cars. Why all the investment in designing cars that could be operated with little or no hands-on attention by a human driver?

So, I asked a friend what that was all about, and he quickly responded: it’s really about trucks, not cars.

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In a country whose system of transporting commodities is insanely organized around highways and trucks (as against, e.g., railroads and trains), and where truck-drivers’ pay is once-again rising (average pay for long-haul truckers jumped 17 percent since the end of 2013, as against the 4-percent increase in average U.S. wages), it makes perfect—profitable—sense to design trucks that can operate without drivers.

Higher costs are driving shippers to reconfigure their supply chains. In August, Whirlpool Corp. opened a distribution center near a railroad spur outside Chicago so the company could load appliances directly from trains, avoiding the need to hire trucks. The amount of goods moved by train is also increasing—but trains can’t deliver to as many locations as trucks, which carry some two-thirds of cargo nationwide.

“Given the fact that the cost of transporting products over the road is rising, it has kind of forced us to rethink our distribution network strategy,” said Jim Keppler, Whirlpool’s vice president of integrated supply chain. “Driver pay is a big part of that.”

Self-driving trucks mean fewer workers (with their wages and benefits), more hours on the road (since robots don’t need to rest), and ultimately more control over driving and delivery (even when truckers are themselves wired these days to eliminate detours, stops, and other departures from more-profitable operation).

Apparently, it’s already legal to drive across Texas and Nevada with nobody at the wheel. . .

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We already knew (thanks to a Pew Research Center report I discussed here) that the United States is no longer a middle-class nation. Now we know (based on a new Pew report), that American cities have become increasingly less middle-class in the past decade and a half.

Not surprisingly, given the size and diversity of the U.S. economy, not all cities followed the same trajectory: in some cities (a good example is Odessa, Texas, with an energy-based economy), the hollowing-out of the middle-class was because the share of adults who were upper-income increased, while in other cities (such as Springfield, Ohio, with a decline in manufacturing) there was a downward movement, with a large increase in the proportion of the adult population falling into the low-income category.*

But there are broader trends that characterize most cities: they’ve become decreasingly middle-class, and the middle income itself has declined precipitously. Thus, from 2000 to 2014, the share of adults living in middle-income households fell in 89 percent of U.S. cities (203 of the 229 metropolitan areas for which data were available, which accounted for three-quarters of the nation’s population in 2014), while in 97 percent of those cities the median income itself declined by more than 8 percent (from $62,462 in 1999 to $67,673 in 2014). In fact, double-digit losses in median incomes (10 percent or more from 1999 to 2014) prevailed in 95 metropolitan areas.

Once again, two highly cherished ideas in the United States—that the nation’s cities are characterized by and based on the middle-class, and that the middle-class itself is improving over time—are shattered by these findings.

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The Pew report also revealed that there’s a strong correlation between the overall level of inequality and the decline in the “middle-classedness” of U.S. cities.

When incomes of households near the bottom of the distribution are closer to the incomes of households near the top, it means that relatively more households may be found sitting within a narrower band of income. In other words, it raises the likelihood that more households are situated within the $41,641-to-$124,924 income band that defines the middle class. Meanwhile, if the distance between the top and bottom reaches of the income distribution is stretched farther, households are spread thinner and fewer of them are likely to fall within the middle-income band.

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The proportion of middle-income households is also strongly correlated with the change in inequality since 2000.

As it turns out, then, while the change in the share of middle-income adults in U.S. cities is not related to changes in median income, it is strongly correlated with the degree and the change in the degree of income inequality. In other words, as the United States has become more unequal in the past decade and a half, its cities have become increasingly less middle-class.

My previous question thus remains: in the midst of the current political debate, will the decline of the United States as a middle-class nation based on middle-class cities be used as a source of fear, intimidation, and scapegoating—or, alternatively, will it serve as a wakeup call to imagining and creating the kinds of real changes that will finally end the declining fortunes of the working-class and its exclusion from the major decisions about how the economy is organized?

 

*Pew’s categorization remains the same in this study: “middle-income” households are those with an income that is 67 percent to 200 percent (two-thirds to double) of the overall median household income, after incomes have been adjusted for household size and location. Here’s what the numbers look like:

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