HodgBlog

I have been thinking a lot lately about economic growth. It seems like the news media, and practically everyone else, assumes that if the economy is growing, it’s a good thing, and if it isn’t, something terrible is occurring. This assumption has been bothering me for a while, and I recently read a book that put my vague uneasiness into words: Deep Economy: The Wealth of Communities and the Durable Future by Bill McKibben. In this book, McKibben makes the following points:

• When you measure the economy, only things that cost money count. So, for instance, increases in things like hospital stays, divorces, and burning coal in out-dated power plants count towards economic growth, whereas things like volunteer work, walking rather than driving, and spending time reading a library book with your child don’t.
• Economic growth in recent decades has not actually increased most Americans’ real earnings or standard of living.
• We are already facing food and energy crises, which will get worse if we keep “growing” the way we have been, and we can’t afford the global warming that would result. (See my previous articles on The Energy Future and Biofuels for more information.)
• Economic growth that raises individuals’ income up to the point where their basic needs are reliably met (roughly $10,000 per person per year) certainly makes them happier, but after most people have reached that point, economic growth does not increase people’s happiness.

So the problem is clear: economic growth is not improving the world or our happiness, and it isn’t sustainable. Unfortunately, the solutions are not easy. Here are McKibben’s key ideas:

• In the area of measuring the economy: When we measure the the value of economic activities, put a value on the natural resources they use up, as well as the pollution they produce, and count that against their economic benefit. Also, rather than only measuring things that cost money, attach an economic value to happiness and to beneficial activities like teaching, volunteer work, and child raising.
• In the area of sustainability: Work on making our economy more localized instead of more globalized, letting each local community come together to figure out how to make itself better. McKibben is convinced that if we all try to make more of our economic activities local, we will both solve our larger economic problems and make ourselves happier, as we get more of a sense of being involved in a community. His ideas include using building materials that come from nearby; eating food that is grown on nearby, small organic farms; adding small wind turbines and solar panels to our cities; and building sidewalks, bike lanes, and bus rapid transit. It’s hard to argue that any of those would be a bad idea.

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The city that I live in (Shoreline, a suburb just north of Seattle) closed two elementary schools this year, and the city of Seattle has also been talking about closing schools, in both cases because the number of children enrolled in school has declined. Yet the population of both Seattle and Shoreline must be increasing, as houses are replaced by condo buildings and apartments, so I had been somewhat confused about this… Until someone yesterday pointed out the (in retrospect) fairly obvious reason: housing in the nearby suburbs and the city of Seattle is getting more and more expensive. So people in my situation (two good jobs, no kids) can still afford to buy houses, but families with school children are having to move farther north or south, to find housing they can afford. So we are closing elementary schools in my part of town, and Kent (a farther-out suburb) has been building new ones. Food for thought…

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In my volunteer work (teaching English to adult immigrants and Spanish-English interpreting), I come in contact with a lot of immigrants — some are here legally, and some are not. Illegal immigration has also been in the news a lot lately, so I find myself thinking about the subject frequently. When I hear what our so-called leaders are saying about illegal immigration, I get frustrated, because I don’t think they’re thinking constructively. So, I decided I’d better get my own thoughts together.

Facts and Statistics

• According to the Pew Hispanic Center, there were about 11 million illegal immigrants living in the U.S., as of March 2005, which is about 3.8% of the total U.S. population.
• Of the 11 million estimated illegal immigrants living in the U.S., again according to the Pew Hispanic Center, about 7.2 million of them are working illegally, amounting to 5% of the U.S. workforce.
• The most common industries for illegal immigrants in the U.S. are construction (1.4 million illegal workers, or 12% of the workforce) and “leisure and hospitality” (1.2 million illegal workers, or 10% of the workforce).
• The median earnings of illegal workers are around $400 per week for men, and less (I am not sure how much less) for women.

Observations

• Basic economics (and logic) tells us that people make decisions based on benefits to themselves. So, who is benefiting from illegal immigrant labor?
  • The businesses that hire illegal workers are benefiting. Clearly, if businesses could hire legal residents at the same total cost (considering salary, benefits, hours, and productivity) as illegal workers, they would hire the workers with papers, to avoid legal problems. So, the illegal workers must be working for lower wages than legal residents would, doing work that legal residents would not do, or working under conditions that legal residents would not tolerate.
  • The illegal workers are benefiting. Typical workers I have met say they came here because they had very little chance of finding work of any type in Mexico, and literally no way to live without work (i.e. not many social services, food banks, soup kitchens, etc.). Here, they can find some work, and they say that even if they are living on the streets of Seattle (many do), their life here is better than what they had available at home: at least they will not starve if they have to go a week or two without working. The people I’ve met who have families here, especially the women, are an inspiration for their dedication to improving their lives and the lives of their children.
  • There are some costs offsetting the benefits. For the illegal workers, these include the cost to get here (hiring someone to convey them across the border, risking life in desert crossings, etc.) and the risk of deportation. For businesses, they include the risk of fines and bad publicity if they are discovered hiring illegal workers. But the fact that we currently have 7 million illegal workers means that these costs must be much lower than the benefits for these two groups.
• This situation is not new. Illegal immigrants have been coming here for decades, mostly from Mexico, and there has been ample work for them for decades. The risk of being discovered and deported has seldom or never been high enough to discourage people from coming here to work; the risk of fines has seldom or never been high enough for businesses to stop using illegal immigrant labor.
• The public in the U.S. is asking for solutions to the “problem” of illegal immigration. But the politicians (funded by business interests) are not offering effective solutions on a scale that would make any difference, any more than they have for the last few decades. Here are the options that I think could actually reduce the number of illegal immigrant workers:
  • The most reliable and humane way to do so would be to improve conditions in Mexico and Central America. If all Mexicans had real options for a good life at home, they wouldn’t come so far from their families and familiar settings to work illegally here — the net benefit would no longer outweigh the cost.
  • We could also erase the advantage businesses gain by hiring illegal workers: make sure that illegal workers have the same salary, benefits, and workplace protections that legal workers do, or give them legal status.
  • The other option is to increase enforcement by a lot (deportations of workers or fines to businesses) to increase the economic costs to businesses or workers.
• The other question is whether illegal immigrant labor is a problem at all. I do not think it is a problem that the workers are working here to improve their lives. But they experience problems due to the fact that they are living and working here illegally, such as constant fear, lowered social status, and loss of employment rights. It’s not a particularly easy life, and it doesn’t seem right that people who are merely trying to improve their lives, and who are also contributing to our economy, should have to live that way.

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I have some more thoughts as a follow-up to my previous post about poverty and the economy — about solutions to the problem of poverty. First, the basics. Since poverty occurs when there is an imbalance between earnings and the cost of living, to move an individual out of poverty, either the person’s earnings must be increased, or his/her cost of living reduced. There are several ways we could consider doing that for the working poor segment of the population (whether here or overseas).

One idea that comes up a lot is to raise the minimum wage, or make it apply to more segments of the local or world population. At first glance, it seems obvious that if people doing the lowest-paid jobs in our society were earning more for their work, the gap between their earnings and the cost of living would be smaller. However, when you analyze the situation more carefully, the result is less clear. For one thing, according to classical economic theory, in a perfectly competitive market economy the presence of a minimum wage leads to unemployment, which could drive more people into poverty (see this Wikipedia article for a more detailed description of why). I am not sure whether this would really happen or not — economists disagree about whether this applies to the real economy — but it is a possible problem with the idea of raising the minimum wage. Another consideration is that raising the wages of the people who earn the least would certainly have some effect on prices. I’m not sure how much we could expect prices to increase, as compared to the increased earnings of the working poor, but clearly the poorest people are the most affected by price increases, and it would certainly reduce the positive impact of their higher wages. So maybe this isn’t the best idea.

Another possible method of alleviating poverty for working people is government subsidies, which could take the form of cost of living reductions (housing subsidies, food aid, free health insurance) or increases in take-home income (through tax deductions/refunds or some type of direct grant). This method might be more effective at reducing poverty than raising the minimum wage, because it should not lead to unemployment or price increases. On the other hand, sometimes people receiving government subsidies are stigmatized, and there is also the issue that subsidies may be a disincentive for people to work. One idea that I think avoids these problems is tax reform. For instance, right now in the U.S., every working person pays 6.2% of the first $92,000 earned in any calendar year for Social Security, and 1.45% of all earnings for Medicare (the employer matches these amounts). This tax could be restructured so that, for instance, the first $30,000 earned in a year was exempt from both taxes, and there was no upper income cut-off (perhaps with an adjustment of the rates), to shift the burden of this tax to those who can better afford to pay it. Alternatively, the special Social Security and Medicare taxes could be completely eliminated, and regular income tax rates adjusted to make up the revenue, because our income tax structure already ensures that people earning the most (whether from employment or investments) pay the most (loopholes aside), and people earning very little pay nothing. The current Earned Income Tax Credit also allows working poor people to receive a tax refund, which is a small direct grant to people who are working to support families; it could be increased. How about linking it to geography, and making sure that anyone working full-time (or legitimately unable to work due to disability) is brought up to at least the minimum income needed for their family to get housing, health care, child care, and food in the area where they live? I wonder how much this would cost to put into action, as compared to the rather ineffective and inefficient collection of subsidies we have now.

A third possible method of alleviating poverty among the working poor, for the longer term, is education. Now, I am a firm believer in education, and I believe that everyone in the world should have the right to a decent education. Also, statistics consistently (and not surprisingly) show that people with more education earn more, and they quickly recoup the investment of time and money spent on education. However, although I am certain that education is beneficial to the individuals receiving the education, and I believe it is beneficial to society as a whole to have a better-education world population, I am not sure that improving education will reduce poverty among the working poor in the U.S. The reason is that I don’t see how improving education will eliminate the need for the low-wage workers that are at the base of our economy — someone will still need to pick our vegetables, work in our fast-food restaurants, and clean our offices. If they are better educated, will they really earn more for types of work that do not require any special training? Possibly if the entire population were well-educated, they would demand a premium for doing boring work, but other than that, I doubt that improving education would make a big change in the poverty rates among the people doing those jobs.

On the other hand, I think increasing the education level in the developing world could have a real impact on poverty there (and on economics-based illegal immigration world-wide). This is because a higher general level of education enables a country to participate on a more equal footing in the global economy — to move from an economy based on subsistence agriculture and exporting agricultural products and natural resources, which does not provide many well-paying jobs, to one more like an industrialized nation. Several countries I am aware of in Central and South America have successfully made this transition in the last few decades, and while there have certainly been factors other than education contributing to these transitions, clearly they would have been impossible without improvements in the general level of education in those countries. There are certainly negative consequences of such transitions (such as increased energy use, probably leading to increased environmental impact), but for me, the morality of the situation is clear. The benefits to the individuals living in the developing world, if their educational systems are reformed and their economies become more industrialized, are such that we cannot morally deny them the chance for a better life.

So by all means, let’s push for better education here and around the world, to improve everyone’s standard of living in the longer term. And in the meantime, I think it’s time for something like an expanded Earned Income Credit that would bring everyone up to a basic level of income. And I think it’s time for me to find out what the current Presidential candidates are planning on doing about poverty, as well as the energy and constitutional questions I’ve been exploring in recent articles. More on that later…

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I have been thinking lately about the U.S. economy, and how it is related to poverty. Here are some thoughts:

• Many people in this country are living in poverty (see my previous article on homelessness for more detailed analysis). Some of these people are unable to work, due to physical disability, mental illness, or other factors. But many of them are working in jobs which do not earn them enough to meet the basic needs of housing, food, and health care for themselves and their families.
• Many people are living and working in this country illegally. The ones I am most aware of come here, mainly from Mexico, because they have very few opportunities for employment at home, and hope they will have a better life here. And although their life here seems very difficult by my standards, they generally say that it is much better than it would be back home.
• People in both of these categories (the working poor and the illegally employed) are staffing our fast food restaurants and grocery stores, picking our fruits and vegetables, cleaning our office buildings and hotels, and working in low-skilled manufacturing jobs. Presumably, if the illegally employed were sent home, and the working poor earned enough to live on, prices would be higher. Though perhaps that would be offset by lower taxes, as we would presumably have less need for Medicaid, Food Stamps, Welfare, Section 8, and other programs where government agencies take care of some of the basic needs of the working poor.
• Overseas, the inexpensive goods we import are being produced in ways that would not be legal here: with child labor, long workdays and work weeks, low wages, and large environmental impact. These practices also keep our prices down.

To me, it is clear that the social and environmental cost of our low prices is too high. What I am less clear about is how to reduce the social and environmental costs, and what effect it would have on our economy. I think I need to do some reading…

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