It is becoming harder to back the claim that the economy isn’t doing well because the private sector isn’t doing well. The evidence from this article further falsifies Governor Romney’s opinions claiming the private sector is in a disastrous state. If wealth was distributed more evenly, we might not see as many people in America desperate for jobs, or Americans working longer hours than ever before just to survive and fulfill their basic needs. The private sector does not need fewer taxes and fewer regulations. It needs to be restructured in a way that fairness can be restored.

Despite the cries from the wealthiest 1%, Obama is doing this country a favor by raising taxes. The wealthiest people at these corporations are making money at increasingly easy rates, while the rest of America suffers through working long hours for the lowest relative wages this country has ever seen. It is time for a restructuring of this economy and it starts with the re-configuration of corporations. The government needs to step in, because the market is not restoring these imbalances.

Henry Blodget put it most accurately when stating, “Our current system and philosophy is creating a country of a few million overlords and 300+ million serfs. That’s not what has made America a great country. It’s also not what most people think America is supposed to be about.” (With all of this said, we must still consider how this “equality” would affect individual’s incentives. One can only hope that these high earners woudn’t just relocate to a more “tax friendly” country.)

American Misconception on Immigration

By: Adrian Nardella and Fiona Maguire.
Edited by: Luay Kanaan.

From Italians and Slavs in the early 1900’s to Central and South Americans in the late 90’s early 2000’s, the concept of immigration in the U.S. has managed to maintain its political prominence due its substantial impact on economic strength, native employment rates and wages.

For some, immigration is seen as a growing concern to the nation; however, the article “Immigration and American Jobs,” written by Eduardo Porter of The New York Times proves this stigma untrue. Immigrants, generally, are employed for manual labor in-part due to their inability to obtain the qualifications and skills held by native employees – thus leaving more specialized and verbal jobs such as being a clerk Americans. These manual labor positions often pay lower salaries, but they act to “reduce the prices of some products and services by providing employers with a new labor source and creating more opportunities for investment and jobs.” Also, because the undesirable jobs such as being a dishwasher or landscape contractor are being performed by immigrants, higher paid positions are created for qualified natives to fill.

However, immigrants influencing the cheap labor market have been under intense media/government and political scrutiny, especially during the Presidential race, because during economic hardships like the 2008 recession immigrants are seen to “steal” American’s jobs because they work for cheaper wages. Not understanding the positive effects immigration and cheap labor have on the long-term stability of the U.S. economy makes it easy for “proud” Americans to be misunderstood as xenophobic Americans.

This article, “Immigration and American jobs” relates back to what we have learned in class, regarding the topics of immigration and income inequality. In class, we discussed how when immigrants first begin to work in their new country, they earn a 17 percent lower wage than natives do. Then, within 15 years of coming to the new country, the immigrant’s wages overtake the natives and within 30 years of arriving to the country, these immigrants begin to earn around 11 percent more than the natives are, therefore stealing American jobs and money. However, this article explains that this is not the case of the poor immigrants that are coming from Latin America. Thus, these immigrants are either creating jobs for Americans or taking jobs that Americans are not willing to take such as the dishwasher at a restaurant.

These Latin American immigrants are not earning more than Americans are, as seen in the graph on a sign used for Occupy Boston portraying the average household income from 1979 to 2007. This graph shows how immigrants that are in the bottom 20 percent of the population in terms of income, tend to remain at the very bottom of the graph without any increases.

This article on immigration and its effects on American jobs explain how immigration can be seen from a different perspective. As Americans, we tend to think that immigrants are taking our jobs due to their willingness to work for low wages. However, immigrants are helping Americans create domestic jobs and at the very least accept the jobs that Americans do not want.

America’s Changing Labor Force and Manufacturing

By: Kyle Peabody and Alyssa Dizoglio.
Edited by: Luke Martin and Fiona Maguire.

America’s labor force is changing - the “baby boomers” are retiring in masses and the next generation filling their positions have been raised in a world radically different than that of their parents.

Today’s youth are attending college at a much higher rate than generations past. The public perception has become such that many believe they must attend college post high school in order to procure a career. A college education is undoubtedly valuable, but there is currently a shortage of approximately 80,000-100,000 “highly skilled” workers in America today, according to the Boston Consulting Group. In addition, the Fabricators and Manufacturers Association estimate that 10 million new “skilled workers” will be needed by 2020.

Despite the shortage in skilled workers, pressure is still on today’s youth to attend colleges and universities. Students will frequently incurring large amounts of debt financing college, rather than pursuing trade and skilled positions. Many youths opt to pursue fields such as arts, humanities, and law, which have unemployment rates of 11%, 9%, and 8%. Meanwhile, fields such as plumbing, construction management, and HVAC (heating ventilation and air conditioning) are expected to have over 15% in job growth by 2018.

Jacey Wilkins of the Manufacturing Institute, found that few high school graduates seek these manual or industrial positions, and those who do lack even the most basic math skills. Due to the recession forcing many companies to cut training and human resources budgets, businesses cannot afford to hire these workers who have no skills and are in need of training. This is potentially troublesome for U.S. manufacturing because companies are looking to regain production from China and to compete with the high costs of labor and energy in Western Europe and Japan.

In order to remedy the current lack of skilled industrial workers in the U.S., high schools should offer more programs for students to begin trade and technical training through programs such as BOCES and the Industry Works Council. The US needs to emphasize the benefits of students attending trade schools and community college programs, including the fact that they are one-tenth of the cost of private universities, in order to encourage students to pursue these fields.

According to a study by Deloitte and the Manufacturing Institute, just one in three parents would encourage their child to work in a trade. Also, among 18-24 year olds, 52% have little or no interest in a manufacturing career, and 61% prefer to enter a “professional” career. To initiate a revival of U.S. manufacturing, it is necessary to educate the American youth about the value of skilled-workers in the economy.

iPatent, you Pay

By: Paulius Kosmarciukas and Christina Rencis.

Technological advances have propelled the human race forward for as long as anyone can remember, from the invention of the wheel to the release of the iPhone 5. But some of the biggest contributors to software and technological innovation for the past decade are taking a different approach. For the first time ever, companies like Apple and Google are spending less money on research and development than on intellectual property right protection.

Edith Ramirez, the Federal Trade Commission officer, warns that patents halt growth and “can deter innovation by increasing cost and uncertainty for other industry participants, including other patent holders.” The innovation engine has slowed down significantly with as much as $20 billion spent on patent litigation in the smartphone industry alone over the past two years. Legal warfare is becoming the new name of the game, leaving the consumer to pick up the tab.

Patents weren’t always thought of as a weapon for legal battle, but as a way to protect one’s self from copycats. Intellectual property rights were first introduced in 17th Century Britain. The enactment of these laws are thought to be a major catalyst of the industrial revolution. Thomas Jefferson used these same principles to set up similar laws in the U.S. during his presidency.

Today the innovation landscape looks much different. Now, even if a competitor is the first to bring a physical prototype to the market, they can be taken to court by the one who was “first to file,” which slows down innovation in the legal system. For instance, if you found a way to move information faster than the speed of light through the fifth dimension you would violate patent number 6,025,810.

Clearly, there are inefficiencies in the current patent system. Industry-specific regulation for protecting intellectual property is paramount. To research and develop a life-saving drug takes years of effort and large sums of investment, while to make copies of it would cost significantly less. Long-term patents are essential to recovering invested resources during development. On the other hand, creating a “slide to unlock” feature on a cell phone requires a lot of investment but the costs can be recovered much quicker due to a different nature of the fast-moving pace of the technology industry.

Patents are the candy that the mega-corporations don't like sharing with others. However, collaboration is often a true source of novel ideas and discoveries. Perhaps the current patent system could model itself after the Creative Commons License, offering custom intellectual property protection of anyone who is a part of the collective pool of inventors.

Intellectual property protection is meant to nurture the entrepreneurial spirit of innovation, not stifle it. Patents have the potential to act as creative catalysts in creating an environment that embraces future inventions rather than pose as litigious obstacles. The opportunities to modern prosperity are realized because of the creation and growth of companies that shape our society.
It’s important to learn from the past in building a successful future and we must restructure the current model of the patent system that is more industry-specific.

For more see:

Duhigg, Charles and Steve Lohr "The Patent, Used as a Sword." New York Times, October 7, 2012.

Posner, Richard. "Do patent and copyright law restrict competition and creativity excessively?" The Becker-Posner Blog, September 30, 2012.

Parnell, Brid-Aine. "Are we in the middle of a PATENT BUBBLE?" The Register, November 4, 2011.

Hariharan, Venkatesh. "Is IP another bubble about to burst? A view from another civilization." opensource.com, Dec 16, 2009.

Lohr, Steve. "Widening Scrutiny of Google’s Smartphone Patents." The New York Times, October 9, 2012.

Race Against the Machine: What You Should Know!

By: Nick Tourville.
Edited by: Wenqing Zhang.

The words of John Maynard Keynes, “’we are being afflicted with a new disease…(called) technological employment,’” refer to a new phase of human society, in which less people have to produce goods and services. According to the book, Eric Brynjolfsson explains why the rapid improvements in technology displace human labor, just like John Maynard Keynes predicted. There is nothing new. The 19th and 20th centuries were marked by waves of automation that drove us from a primarily agricultural economy to an industrial economy. Machines such as the plough and steam engine displaced jobs in certain sectors, but there were plenty of new sectors that were coming into existence that gave new jobs. Today, we are at another transition in society where automation may help us discover the 3rd industrial revolution, or it will just continue to displace jobs.

Technological progress, in particular the computer age, has such a high rate improve progress; therefore our skills, institutions, policies, and schools cannot keep up. New technologies substituted normal routine tasks that were originally occupied by humans. For example, virtual assistants and self-service machines are decreasing the need for human occupancy in assistant and clerk-like jobs. Additionally, computers perform the tasks that people in sales, logistics, and analytics used to do. One electronics company called Foxconn has even purchased 1 million robots to replace much of its workforce. Routine jobs originally performed by humans at this company, such as welding, basic assembly of parts and spraying paint, are now being accomplished by these robots. Additionally, computers may still be in an infant stage as evidence suggests that this exponential increase in computing power may continue for much longer. This could pose even greater problems because a growing population and fewer jobs mean a faltering economy.

While productivity continues and wealth increases at the rate which is greater than at any point before, the average worker is not doing as well as they should. The replacement of jobs is consequently causing real median income to fall; the last decade proved the first real drop in real median income. Furthermore, Real GDP Per Capita is growing much faster than real median income. This proves that the wealth is being allocated to the richest people in the country, but not allocated in average. Historically, increased output has been correlated with increased employment, but now the two are diverging (employment is not rising with GDP), as digital technology is becoming much more prominent.

Technological improvements are causing a widening gap in inequality some reasons. First of all, many industries tend to favor only a few individuals to get the largest proportion of wealth. Athletes, entrepreneurs, CEOs, TV stars, and financial executives have been able to take advantage of digital technologies and leverage their skills across the globalizing world. In fact, the average CEO in 2005 got 300 times more than the average worker is paid, which is an increase from 1990 when a CEO only made 70 times more. In addition, as automation substitutes routine tasks, the demand for skilled labor is increasing. This is causing an even greater gap between the educated and the least educated. Now, people are forced to be educated or they will loss their opportunity to compete with others; however, the people who are in the lowest level on the totem pole are in a terrible position to pay for educating. Furthermore, technology causes a great shift from labor to capital, which rewards the capitalists. The richest capitalists capture a greater share of income. Since the laborers spend a greater proportion of their income than the capitalists (capitalists have a propensity to save more of each marginal dollar than laborers), money is not being circulated through the system and creating greater inequality.
The unemployment rate is rising and the future that people are facing is not much better with technology. The core of the problem is that the skills of institutions, organizations and people have lagged behind the increasing technological change. As a solution to these problems, humans and machines have to work together to create even better ideas. Innovation is essential right now. The author of this book, Erik Brynjolfsson, recommends creative entrepreneurship as being the viable solution for everyone. Everyone can become an entrepreneur and creates small businesses everywhere around the world. Hopefully, the ingenuity of the human race will create the 3rd industrial revolution and jobs will be created. If not, technology will continue to displace jobs, and major shocks in the economy are to come over the next few decades. There needs to be a new plan to adapt to the changes that are taking place in our world either way.

Environmental Destruction in History–It Bodes Poorly for the Elephants

A sample blog post by Elisabeth Perlman.
Image credit: Wellcome Library, London

The recent news about the mass slaughter of elephants has prompted me to think about environmental protection choices over time. It is interesting to think about what the good in question actually is, when one reads an article like this one. The majority of people who care about the protection of African Elephants are unlikely to ever go to Africa and see them in the wild—I was in Cape Town for a conference this summer, and even from there the cost of traveling to look at elephants struck me as prohibitively expensive; I made do with penguins, ostriches, and baboons—if they encounter elephants at all it is likely to be in a zoos where their existence is not threatened (though breeding populations of a suitable size need to be maintained). Even confronted with this fact I still am willing to pay some amount of money to protect these creatures. There must be some sort of comfort I get from knowing about the existence of wild elephants, large charismatic mammals, and that is the good I and others who wish to help them are paying for (national parks seem to tap into this same desire for existence as well). I am willing to venture that there are very few people in this world who do not want wild elephants to exist.

The existence of wild elephants are not like chairs: if no one actively produces chairs there will not be any new chairs, but if no one interferes with elephants they will flourish, and it is only humans’ active involvement that threatens their existence. This is true of most environmental goods: humans unwittingly threaten their existence as they pursue some other goal. Water is dirtied as people try to remove waste from their immediate vicinity; forests are destroyed as people try to increase the supply of wheat. With increased prosperity there is a very strong tendency to consume goods that cause environmental harm as byproduct. This is the theory behind the first half of the effect in the proposed environmental Kuznets Curve (Kuznets’ conjectured curve was a proposed inverse-U shaped relationship between development, on the X-axis, and inequality), the reason environmental quality degrades with development.

Boding poorly for the elephants, the evidence for environmental degradation increasing as development increases is clear. What makes the theory controversial is the other half, the idea that people will actively spend enough on the environment so that greater levels of development will lead to environmental quality improvements. This seems to be true for some things, like large particle pollution in cities, but not others, like carbon emissions. Is harm to the elephants a visible enough harm that people are willing to intervene? Is the willingness to pay of people trying to protect the elephants greater than that of those trying to kill them? How does the international nature of the demand for the good that threatens elephants—ivory—as well as for the continued existence of wild elephants balance against local desires? How does local development play into this picture?

In the nineteenth century ivory was not only demanded for decorative carvings, but for utilitarian items such as buttons, billiard balls, and piano keys. The development of plastics created an (often more attractive) alternative for all of these uses, so the demand for ivory is now merely for ornamental objects. In western countries people wishing to protect elephants have largely persuaded the public that the ivory trade is harmful, laws have been passed against the trade, and to the best of my knowledge demand is quite low. Other markets with different cultural histories keep up worldwide demand. In 1980s Japan, increased prosperity drove up the price of ivory, and today demand seems to be coming from a growing middle class in China.

The fate of many wild elephants hangs on a number of international political economy questions: What is the local demand for environmental goods? How do potential changes in Africa’s development affect this demand, and the ability to extract ivory? As history suggests that given how poor the nations impacted are, environmental goods are luxuries, where demand will not be strong until people are much richer. Further, increased development lowers the cost of trading ivory more than it raises the cost of killing elephants. While locals may wish to protect elephants, the on the ground fight’s financing will come from aboard—the real fate of wild elephants hinges on the international competition between those who are willing to pay for ivory, and their networks of influence, and those who are willing to pay for the continued existence of the elephants, and their networks of influence. Sadly, looking at the fate of other once-abundant animals in areas with weak government, history doesn’t seem to have good news for the elephants.

For more on the environmental economics topics discussed here see:
Richard T. Carson, W. Michael Hanemann, Chapter 17 Contingent Valuation, In: Karl-Gran Mler and Jeffrey R. Vincent, Editor(s), Handbook of Environmental Economics, Elsevier, 2005, Volume 2, Pages 821-936, ISSN 1574-0099, ISBN 9780444511454, 10.1016/S1574-0099(05)02017-6.

Anastasios Xepapadeas, Chapter 23 Economic growth and the environment, In: Karl-Göran Mäler and Jeffrey R. Vincent, Editor(s), Handbook of Environmental Economics, Elsevier, 2005, Volume 3, Pages 1219-1271, ISSN 1574-0099, ISBN 9780444511461, 10.1016/S1574-0099(05)03023-8.