Thursday, December 22, 2005

Spilling ink

At the end of each year, we get the inevitable lists of top-this-and-that (including Time magazine's weirder and weirder person-of-the year and people-who-mattered) and resolutions and forecasts, etc.

David Wessel in today's WSJ forecasts the following:

"Ben Bernanke's first interest-rate move as U.S. Federal Reserve chairman will be to cut rates ... A big bankruptcy will rattle the U.S. and shake political support for unfettered global trade ... Health care will emerge as a big issue in the 2006 congressional elections, forcing 2008 presidential candidates to promise action ... The gap between winners and losers in the U.S. will keep widening."

Here is what he says about the latter:

"The gap between winners and losers in the U.S. will keep widening.
In a 1998 book, a colleague and I predicted technology would propel faster economic growth and a growing supply of educated workers would narrow the gap between high- and low-paid workers over the ensuing 20 years. We were right on the first, and only temporarily (in the late 1990s) right on the second. Next year won't help our case.

"By nearly every measure -- the ratio of CEO wages to those of ordinary workers, the share of income going to the top fifth, differences between health and retirement benefits at the top and bottom -- inequality is growing. Why? Technology, globalization, the premium employers pay to hire the educated and workplaces where old-style loyalty is replaced by rewards for solo performance.

"The politicians in charge believe resisting these forces is counterproductive or wrong. But even Mr. Greenspan, a card-carrying conservative, sees a need to do more than we are. 'Equal opportunity requires equal access to knowledge,' he has said. 'We cannot expect everyone to be equally skilled. But we need to pursue equality of opportunity to ensure that our economic system works at maximum efficiency and is perceived as just.'

I hope we make it through the year. I also hope that all "gap-between- winners-and-losers" discussions take note of the following:

Labor migrations between adjacent rich and poor countries with long borders are very hard to limit. Data about wages at the low end for the U.S. are tricky because they include many immigrants who have improved their lot. Also, wages at the low and are depressed because of immigration, which is mostly by the unskilled.

If we are to discuss changes in the U.S. income distribution, then it is only reasonable to control for the latter effects. Otherwise we are just spilling ink.