Until 1968, the minimum wage not only kept pace with inflation, it rose in step with productivity growth. The logic is straightforward; we expect that wages in general will rise in step with productivity growth. For workers at the bottom to share in the o

I ridiculed the NYT and Washington Post yesterday for telling us that China, the world's most populous country, is in danger of running out of people. Using a tool that seems relatively scarce in Washington policy discussions, arithmetic, I showed that China's gains in productivity will dwarf the effects of a falling ratio of workers to retirees. To put it simply, with each worker being far more productive, China will be able to enjoy a society in which both workers and retirees enjoy much higher living standards 20 years out than they do today.

I was hoping that we would not see another of these China population crisis stories for a while. I was wrong. Today, Ross Douthat used his NYT column to tell us how "Communist cruelty and western folly built an underpopulation bomb." Douthat tells us:

"Like the United States and most developed countries, China has a birthrate that is well below replacement level. Unlike most developed countries, China is growing old without first having grown rich."

This is a master statement of illogic. Yes, China is poorer than the U.S. and other wealthy countries, but there are two simple points that make Douthat complaint look incredibly silly.

First, we would want to look at rates of growth, not just levels. If we look at I.M.F. projections, China's per capita income is projected to grow at rate of just under 5.5 percent annually for the next four years. If it continues this pace of growth for the next twenty years, when today's too small birth cohort is entering the workforce, its per capita GDP will have nearly tripled. That would make it $64,200 per person, about 7.0 percent higher than the U.S. is today. In other words, China would be rich.

But maybe the 5.5 percent growth rate is too much to assume will be sustained for twenty years. Let's cut it in half to 2.8 percent annually. In that case, China's per capita income would grow by a bit more than 73 percent over the next two decades, making it $38,400 in twenty years. That is more than one-third less than the current per capita GDP in the U.S., but it's only slightly below where Japan and Korea are today, two countries who Douthat apparently feels comfortable in saying have grown rich. It's also roughly where the U.S. economy was in 1994, a year when most of us would have thought we were relatively rich by world standards.

But this is actually the less important problem with Douthat's complaint. In 2020, China is considerably poorer than the United States. This means that its people on average have fewer cars, smaller housing units, and in other ways have lower material living standards than people in the United States.

Folks who have followed economic policy debates for the last few decades can never be surprised by the poor quality of reporting, but it still can get annoying. In a world where we are already doing irreparable damage to the environment through global warming, the idea that we will have fewer people in the future should be seen as a good thing.

Nonetheless, our leading news outlets are warning us that China, the world's most heavily populated country may be seeing its population decline in the decades ahead. The story is that fewer babies will mean fewer workers twenty years out. We are warned that this would lead to a labor shortage and make it more difficult to support retirement pensions. The Post article warns that in Japan (it also talks about countries other than China), it could make it difficult to sustain economic growth.

Let's deal with these one by one. What does a labor shortage mean? Presumably it will be hard to get people to do the least productive, lowest paying jobs. The obvious response is, so what? This is called "capitalism." If a particular job holds little value then it won't get done. This is the reason half of our workforce is not still in agriculture. They are doing more productive tasks elsewhere.

Going forward, if we do see serious labor shortages we will probably see fewer people serving tables in restaurants, working as housekeepers in hotels or providing valet parking. And, the people who still work at these jobs will get much higher pay. Sounds like a terrible crisis!

The second point is that with fewer workers per retiree, it will be harder to support retirement programs. The problem with the story is that the benefits from higher productivity growth swamp any possible increase in costs associated with changes in demographics. Here is what I wrote a few years back in reference to China.

(This post first appeared on my Patreon page.)

This is not an abstract philosophical question. Boeing forced out its CEO, Dennis Muilenburg last week. Muilenberg had played a major role in overseeing the development and production of the Boeing 737 Max, a plane which was recently involved in two major crashes, resulting in hundreds of deaths. Following these crashes, and the grounding of the plane in March, evidence has come out that Boeing did not take seriously many safety issues that were raised by people working on the plane.   

Since Muilenberg was the person in charge for the last four and a half years, it is certainly understandable that the company would want to send the guy packing. Boeing had long been a company with a solid record of putting safety as a top priority. It no longer has that reputation, which is hugely important for a maker of civilian airplanes. While this was clearly not all Muilenberg’s fault, as CEO he has considerable responsibility.

All of this is pretty straightforward. The part of the story that many people may find jarring is that Muilenberg walked away with $62 million in pay and benefits when he left the company.

This is jarring because it would be pretty hard to argue that Muilenberg had done a good job running the company. He leaves it with a horrible reputation problem, for which it may take many years to recover.

But we know shareholders don’t care about reputation, they care about money in their pockets. They might be okay with handing Muilenberg $62 million if he made them a lot of money.

However, that doesn’t seem to be the case. Boeings stock did do quite well under Muilenberg, rising by just under 130 percent over the four and half years that he was at the helm. But the stock of Airbus, Boeing’s main global competitor, almost matched this performance, and that was without the assistance of the big cut in corporate taxes that Trump gave to U.S. corporations in 2017. In other words, there is little reason to think that Muilenberg did anything for shareholders that any other Boeing CEO would not have done.

January 14, 2020 (Prices Byte)

Jared Bernstein and Dean Baker
The Washington Post, January 14, 2020

January 14, 2020

With the surprise assassination of Qassim Suleimani, it’s hard not to wonder if Trump was trying to start a full-fledged war for an election year economic boost.

January 10, 2020 (Jobs Byte)

January 10, 2020