2006_03_01_archive

Why are wages flat and inequality growing?

Paul Krugman (via Brad Delong) bemoans the corruption that has become

commonplace here in D.C. and sees it as an effect of growing income

inequality:

Both history and modern experience tell us that highly unequal

societies also tend to be highly corrupt. There's an arrow of

causation that runs from diverging income trends to Jack Abramoff

and the K Street project.

George Reisman (via Chris Engelsma) has explanation for the flat

wages:

The last forty years or so have seen the imposition of

environmental legislation and consumer product safety legislation,

and numerous other government programs that serve to increase the

costs of production. The great majority of people assume that the

higher costs simply come out of profits and need not concern them.

But the fact is that the general rate of profit in the economic

system remains more or less the same, with the result that

increases in costs show up as increases in prices, or as decreases

in other costs, notably, wages. The real wages of the average

American are stagnating in large part because the higher real wages

he could have had...have instead been used to pay for the cost of

environmental and safety regulations.

Krugman is definitely on to something, but he's got the causation

backwards. Public choice theory predicts that the rich have

disproportionate lobbying clout because they have more concentrated

interests. If there is a big motivation for lobbying -- namely the

growing impact of federal taxes and regulations and income

redistribution on all of us over the decades within which inequality

has climbed -- the rich will do a disproportionate amount of that

lobbying and will get an even more disproportionate benefit from it.

The result is today's K Street. The generic semi-skyscrapers of K

Street -- all required by law to be shorter than the Washington

Monument -- are the true capital buildings of the United States, the

capitals of corruption, just a few blocks away from where I'm typing

this. It's the street under which I catch the subway home. It is in

those stunted skyscrapers, rather than in the symbolic domed capital

you see on TV, that most of our country's laws and regulations are in

fact drafted. The wealthy -- not to be confused, as Krugman does, with

those who happen to have a high income in a particular year -- have a

disproportionate clout on K Street. As a result, federal regulation

disproportionately impacts the non-wealthy, including those who are

not wealthy but are trying to earn enough income to become wealthy.

Reisman correctly explains why real wages aren't rising: productivity

is barely keeping up with the unprecedented crush of government

regulations and spending over the last several decades. When we add

the disproportionate lobbying ability of the rich, who can thereby

direct disproportionate costs of taxes and regulations increasingly

towards the middle classes and poor, the great rise in government

spending and regulation explains both flat wages and growing

inequality. To Reisman's observations on business regulations I'd add

the similarly strong and obvious but widely ignored connection between

anti-growth zoning and rising housing prices. Housing now eats up

historically extraordinary fractions of household income, and that is

also a result of predatory government regulation. Not coincidentally,

anti-growth zoning also benefits wealth (houses already built and

owned) at the expense of income (people who have an income but not a

house, who can increasingly not afford to buy a house near where the

best income jobs are).

Of course, another explanation for the supposed flat wages is that we

don't and can't really know whether they have been flat, or rising, or

falling: the measurements that go into computing inflation and "real"

wages may be quite subjective and inaccurate, for a variety of

reasons. But that is a post for another day.

posted by Nick Szabo at 6:12 PM 9 comments links to this post

Quantum dot control over light and heat

LEDs are more energy efficient and last far longer than light bulbs.

But their color range has been rather limited. A graduate student at

Vanderbilt University has discovered that you can paint LEDs with

quantum dots . The color produced by the quantum dots, nanocrystals of

a precise specific size, can be varied by varying the size of the

crystal, but the result is usually one specific wavelength. Michael

Bowers at Vanderbilt discovered that crystals of cadmium and selenium

that contain either 33 or 34 pairs of atoms are both preferentially

formed (thus making mass production easy) and emit a broad-spectrum

white light akin to the sun or a standard light bulb.

Another interesting application of quantum dots is for more efficient

thermoelectric devices, for example devices to cool our increasingly

hot silicon computer chips. Quantum dots allow a greater ratio of

thermal to electrical conductivity -- that means more heat pumped