The NYT has a readable summary of Thomas Piketty, Emmanuel Saez and Gabriel Zucman’s US income research. Much of it is familiar, but I was struck by this paragraph:
[since 1979] … Younger adults between 20 and 45 years old have seen their after-tax incomes flatline.
But over the same period, seniors in the bottom half have seen their after-tax incomes grow by over 70 percent. The bulk of that gain represents increased health care spending through Medicare.
Growth rates of a few percent a year do add up; health care is eating everything. Maybe it’s time to reread my old health care post.
Their findings are very important, but one of their recommendations falls flat (emphases mine) …
… improving education and job training, equalizing distribution of human and financial capital, and increasing labor bargaining power, combined with a return to steeply progressive taxation
No, education and job training aren’t the answer. Roughly 40-50% of the US population has an IQ of less than 100. People with an IQ of under 100 have many skills, but they are not going to succeed in an academic program. Canada has the world’s highest “college” (includes 2 year vocational programs) graduation rate, and even they top out at around 56% of the population. I’m not sure why economists struggle with this basic arithmetic, my guess is they spend too much time with the cognitive elite.
What is the answer? We need to flip our thinking. We can’t change people to fit the work available in the natural post-industrial economy. We need to change the work to fit the humans. We need to incentivize work that is meaningful and rewarding across the cognitive spectrum. Germany did some of that by biasing their economy towards manufacturing. We can do some of that too (sorry Germany, that’s going to hurt you!), but we’re going to have to think more broadly. We’ll need to provide direct or indirect subsidies for work that’s productive even if it can’t compete with automation. We’ll have to apply work support lessons from the US military (long history of productive work across cognitive spectrum) and from traditional disability work support programs.