Growing Americans’ Standard of Living

cropped-bob-shapiro.jpg   By Bob Shapiro

The Standard of Living is used to try to show how good (or bad) our lives are in material wealth. While money isn’t everything, poverty tends to make it very difficult to be happy.

There are several ways to try to measure it, but Standard of Living tends to boil down to Real GDP per person. GDP is an imperfect

measure, so Standard of Living also is as well. But, it’s all we have so let’s use it.

If we want it to rise, we need to get Real GDP to rise. The $64,000 Question is how. As we look at different policy options, we also should prefer longer term effects rather than transitory, short term results.

Take the various forms of Welfare assistance. If we could identify which people were in dire, immediate need, then the short term benefits would be quite apparent. But, the longer a person receives an “Entitlement,” and the more people who do so, then the worse it is for all Americans long term.

Welfare Spending

  • Welfare rules make it even more difficult for the person to add to GDP, for if they get caught, they might lose benefits. Sneaking around to prevent losing benefits also promotes a disrespect for the law.
  • Receiving welfare reduces a person’s initiative. There’s less reason, less need, to go to school or to learn a trade if you’re being paid for doing nothing. You don’t improve your skills, and you let any skills you may have had deteriorate, so your prospects for earning more in the marketplace become lower. Cartoon Standrad of Living
  • The wealth needed to pay for Welfare benefits must be taxed (including inflated) away from possible savings. Savings is the only true source for investment funding. So, investment not only to replace equipment that is wearing out, but also to create better equipment, is reduced. Without better equipment, or even upkeep of existing capital goods, GDP stagnates or even declines. Falling GDP means that people no longer are able to live the way they have been living.
  • All of this creates a Victim mentality in society. Those receiving benefits say they deserve the money because they were victims, and those having to pay think of themselves as victims because their money is being taken away to support somebody else. Victim mentality reduces cooperation in society, further hurting GDP.

Now, some people really are in dire need of help. I’m not suggesting that Americans should let them die in the streets. As I’ve said before, Americans are the most charitable people in the world. Even with high taxes and transfer payments, Americans still give well over $300 Billion a year to charity. Without such high taxes used partly to pay for transfer payments, that charitable giving likely would be much higher, and more would get to those actually in need.

Rather than allowing the Food Stamp program to grow to its current 50 Million people size, we should have reduced it, allowing Americans’ good will to take up the slack where help really was needed. The much reduced level of taxation could have been used to grow GDP, making the Standard of Living rise for all Americans, rich and poor alike, go up instead of down.

With more people needing to provide for themselves, more people would be working, producing more goods and services, also pushing up GDP.

There are no jobs,” you say? That is far from being true. There are jobs to be had – if you really had to work, and there are things you could do yourself to bring in some money – if the rules didn’t prevent you.

One of those rules is the Minimum Wage, which I’ve talked about previously. You can’t work except for at least what the government allows – unless it’s for zero (as a volunteer). This keeps you from growing your skills, confidence, and resume, which would make you more valuable.

Minimum Wage Ladder

Instead of agitating to raise the Minimum Wage, which would hurt most of those who supposedly would benefit, the movement should be toward reducing and eliminating this stultifying block to earning money and improving skills.

Today, we’ve talked about how removing two kinds of government programs would help improve all Americans’ Standard of Living by improving Real GDP. There are many more examples of government programs which hurt Americans, and they also should be removed.

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7 thoughts on “Growing Americans’ Standard of Living

  1. But GDP is an average over the entire population, and its relevance begins to break down when the economy becomes sharply segmented. A couple years ago Alan Greenspan observed that although there had been “significant recovery…amongst high income individuals,” there had been no real improvement for “a very significant amount of the labor force.” Greenspan suggested this was evidence that America may be becoming host to “fundamentally two separate types of economy.” To whatever degree he is right, as this divide widens, the value of generalizations like GDP decreases.

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  2. I’d prefer not to use any single measurement. Of course it’s important to know whether the economy as a whole is growing or not, and that’s what GDP actually measures — it just divides that production number by population before reporting it. And that’s important, too. As Piketty and others have reminded us recently, overall growth is a function of both economic growth and demographic growth.

    BUT, in a time when investors are adjusting their behavior to favor companies that serve the top and the bottom of the income/wealth curve and ignore the middle (cf this article on Consumer Hourglass Theory: http://www.businessinsider.com/hourglass-consumer-theory-pg-citigroup-2011-9), I think it’s vital to qualify measurements of how much the economy is growing with measurements of FOR WHOM it’s growing and for whom it isn’t.

    I think this data is vital, regardless of your policy goals. MY goal is certainly not to implement a welfare state or a command economy, and I think this feeling is shared by many who insist that distributional data is key to understanding the current economy. It IS interesting that looking at government spending, some of us see welfare for the poor as the biggest problem while others see welfare for the rich (in the form of tax loopholes, ignored regulations, federal bailouts and non-prosecution agreements) as the more egregious issue. But once again, I suspect more of the right kinds of dialog will lead to progress on those issues.

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    • OK, so here is where we can agree or disagree.
      Agree:

      *Ignored Regulations are bad. Either the reg is good and should be followed, or its bad (very often) an should be dumped.

      *Federal Bailouts are bad. If you need a bailout, then you shouldn’t continue to keep managing resources poorly. Go bust, and let a competent owner use your resources better (hopefully).

      *Non-Prosecution is bad. If the law makes sense, and if you broke it, then a slap on the wrist fine (or no prosecution at all) is corruption. Bigger fines and/or jail time may be needed.
      Disagree:

      *Tax Loopholes are NOT welfare for the rich (or the poor). Letting somebody keep what he earned, even if he’s rich, is not welfare. It’s a perversion of the language to call it that. However, to the extent (a BIG extent) that a tax loopholes are used by our rulers to change our economic behavior, they are destructive of the Economy, and so, they are destructive of the Standard of Living of all Americans.

      *The only investors who adjust their behavior away from straight profits are lunatics, like the green investors. If you have money, you want it to grow – period. If you try to introduce a second reason – a second master – then you’re mismanaging your resources just like a manager who needs a bailout. Fine! Go do it, and let the rest of us be rid of your moralizing about the good you do by earning less ROI.

      *Production, whether for the top or bottom of the market, if it sells profitable, helps everyone. Initially, only the wealthy could afford cars, TVs, computers, and tons of other things. As American ingenuity made these more and more affordable, then all joined in in enjoying them. And, along the way, the companies producing and profiting from them, even when only for the rich, provided jobs for the less wealthy to raise their Standards of Living.

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      • Tax Loopholes, in my opinion are the same as non-prosecution and ignored regulations. They are a way of avoiding a legal obligation, and they are available to only some people (those individuals or corporations wealthy enough to afford them). I suspect your objection here is based on the logic that all taxes are bad, so any attempt to circumvent them is good. I disagree. I’d much rather see a low, flat tax with no loopholes than the ridiculous tax code we have now. I think we can argue about how high taxes should be and what they should be spent on, and still agree that the law ought to apply to everyone.

        Reply:
        A low, flat tax with no loopholes is OK with me so long as it doesn’t distract from the prime focus of lowering taxes and spending. BTW, using loopholes IS following the law, as stupid as many loopholes are.

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      • There are a LOT of investment options out there, and I think it’s realistic to design a portfolio that reflects an investor’s wider interests and beliefs. For example, I would never invest in BP. Or drones.

        But even discounting that type of decision, I think “straight profits” is less simple than you suggest. Plenty of firms indulge in short-term behaviors that I think are unprofitable in the long run, for both the firms and for society. Plenty of firms are trying to profit from unsustainable and socially harmful activities. Ceteris paribus, I avoid them.

        Regarding production, I guess I can agree that any production is better than no production. But once again, it’s usually more a question of what production. I stand by the idea that a society that hollows out the middle is in trouble.

        Reply:

        *Avoid BP if you like. That’s your right. But remember, if BP were to give the biggest ROI, you’d get less.

        *Definitions of unsustainable and socially harmful may vary. Ceteris paribus – things generally are not equal in investment prospects.

        *It’s not businesses which hollow out the middle, it’s taxation and regulation.

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  3. Reblogged this on danallosso and commented:
    Once again, Bob and I differ. But once again, I suspect that at the bottom of it all, the world we’d each like to see isn’t all that different. It’s the obstacles we perceive and the solutions we think will get us there that are at odds. But I think we should dig deeper and figure out why, and then see where the common ground might lie.

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