Illusion of profit drives wages down?

Very good presentation last night at APA by Margaret Garb, historian at Washington U who has researched post-Fire working class housing arrangements and their financing in Chicago. Evidently she did a lot of detailed research, focusing on a single block of the old Harrison/Halsted district (obliterated in the 1960s by the UIC campus), examining who bought and sold property, how they financed, who rented, who boarded, their occupations and incomes, etc.

One striking similarity to more recent times is that workers used the equity Continue reading Illusion of profit drives wages down?

Cost of living index vs. consumer price index

I should have known about this, but I just discovered that BLS has been publishing a C-CPI-U index. I had seen the term “chained index” around but didn’t realize what it means. This index has a direct month-to-month link to what consumers report that they’re actually buying, rather than using a fixed marketbasket as the conventional CPI’s do. Thus the chained index measures the cost of living– what people actually spend to live– rather than consumer prices. BLS says the chained index is expected to generally be lower than the conventional index, and that has been the experience since it was introduced. However, it seems to me that when the chained index is lower than the conventional index, that means people are finding ways to live cheaper (presumably because their real incomes are declining). If people’s incomes were increasing, relative to the cost of living, wouldn’t the chained index rise faster than the conventional one, as they choose more luxuries?

If I am correct, and the indexes are correct, then real incomes are declining.

BLS explains their chained index here. Actual data seem to appear only in the detailed reports, which are here.

How the sinking rich brought prosperity

According to economic historian Gregory Clark, the industrial revolution occurred because people developed “the middle-class values of nonviolence, literacy, long working hours and a willingness to save…” And this happened because the poor lived in such wretched conditions that the rich out-reproduced them.  Not enough of the working class children survived to do the work, so  many children of the rich, carrying these “middle-class” values, ended up in the working class.  They carried the values with them: “Thrift, prudence, negotiation and hard work were becoming values for communities that previously had been spendthrift, impulsive, violent and leisure loving.” This made the industrial revolution possible.

That’s my summary of Nicholas Wade’s review in yesterday’s New York Times of Clark’s forthcoming “A Farewell to Alms” (to be published by Princeton University Press).  Apparently it’s based on a huge amount of detailed research.

It seems to contradict Georgist theory in a couple of ways.  First, Clark assumes that to some extent values are genetic, whereas George emphasized that people are pretty much identical everywhere, with social institutions explaining the main differences.  Second, it implies that the formula for prosperity is to let the children of the poor die, and make the rich kids work.  Well, maybe making the rich kids work wouldn’t be so bad.

Thanks to NewsTrust for bringing this to my attention.

Henry George's remedy for AIDS

No, Henry George didn’t say anything about AIDS,  but…

While safe-sex education has changed sexual behavior in the United States, it’s had little effect in Africa, which [UC Research Associate Emily] Oster ascribes to quality-of-life differences. “How much people care about dying from AIDS 10 years from now depends on how many years they expect to live today and how enjoyable they expect those future years to be,” Oster wrote. “If income and life expectancy in Africa were the same as they are in the United States, we would see the same change in sexual behavior—and the AIDS epidemic would begin to slow.” 

Achieving prosperity and improving the quality of life– that Georgists know how to do.

Source:  Chicago GSB Magazine 

Might poverty be bad for society?

Well, uh, yeah, it is possible.

Economic theory suggests that when poverty affects a significant portion of the population, these effects can extend to the society at large and produce slower rates of growth

So says the GAO. The study, entitled POVERTY IN AMERICA: Consequences for Individuals and the Economy, seems to mainly focus on health issues, noting that of the “over $400 billion” spent on federal programs that “provided cash and noncash benefits to individuals and families with limited income,” $176 billion went to medical providers under medicaid, and lists several other programs which are essentially payments to non-poor people who are directed to provide services to the poor.

Even Off the Books, you still need a space

Finally got a copy of Sudhir Venkatesh’s Off the Books, courtesy of a suburban library. It’s a study of a poor ghetto area within Chicago. Few are “employed,” but many are working, hustling to make a living.

“I soon discovered that the seemingly random collection of men and women in the community…were nearly all linked together in a vast, often invisible web that girded their neighborhood. This web was the underground economy.”

So how are these folks making a living? Pretty much any way you could imagine. Of course some of the work is illegal– prostitution, drugs– but much would be legal if it was performed in accordance with applicable laws and ordinances. People are selling clothing, food (some of it home made), used equipment (some of which may have been stolen), maybe providing security services for local stores and even apartment building owners. Sure, off-the-books activity can avoid some taxes, but among the underground services is the preparation of income tax returns. (Thus the preparation of the books is off the books). Life is difficult, because almost everyone’s poor and public services are, well, not uniformly superb.

There are several reasons why it’s difficult to escape to a better life, one of which is that underground work doesn’t produce a credit rating nor, really, a resume. And many people are simply afraid to leave their familiar community.

A few community leaders help keep things functioning, but receive little benefit.

“It is by working off the books, in back rooms and behind the scenes, that local residents come up against the limits of their [work]…Because they have done this surreptitiously…they are implicated in the very dangerous and destablilizing activities they are trying to address…[and] they can never really show themselves to those in the social mainstream– phiilanthropists, advocates, employers, and so on– who would otherwise find their work courageous and worthy of acknowledgement and reward. It is nearly impossible for the press and political leaders to recognize their work…Thus, in the long run their success as mediators does little to help them advance personally.”


“Even in a depleted ghetto, there will be collective actors in place who attend to neighborhood affairs, and it is important to … note that their time and energy are taken up by matters that do not always make it onto the radar of the wider world. They may be working in the immediate present to make sure that children can walk safely on the widewalk or through the park…To do so, they may have to find the pimp, car mechanic, or other hustler and iron out the problem themselves. Doing this repeatedly can mean reduced time to prepare funding proposals… Unlike their suburban counterparts who are more likely to have decent city services and far fewer shady types roaming about, they do not have the time to luxuriate and plan for the future.”

What does a Georgist see in this book? Of course it is that land is key; one needs a place to produce, and even just to live.

Underground entrepreneurs possess skill, business acumen, and tremendous potential for innovative skills and strategies. What most lack is a physical space to ply their trade….Some have equipment that must be housed, others need a place to sell…others need sites to advertise…Private, sheltered, decent space is at a premium.”

“To hustle, one does not simply set up shop in an alleyway or on a street corner. Chances are that others have already claimed that spot. Moreover, it is likely that any claim to use turn and earn revenue will be contested by other entrepreneurs” such as block club presidents or precinct captains. “In the ghetto, one must negotiate public space before one can hustle.”

“Very few middle-class Americans see an alley as a venue for monetary gain; but in the ghetto these spaces are full of possibility. “

“Street hustlers can offer various services to merchants including security, cleaning up, advertising. “[H]ustlers who offer merchants these services are not necessarily looking for additional income…Many have other entrepreneurial schemes…and so need a private sheltered space. James Arleander[a pseudonym] articulates a typical hustler viewpoint:

“You can always make money…But getting a place is priceless. That’s the hardest thing, to just have some place to keep your [tools and belongings] and … hide from…people who may be upset at you.”


It’s a book worth reading if you’re interested in how some poor people manage to survive, or even just another perspective on how the city works. Unfortunately, Harvard University Press has done a terrible job of copyediting, from page 1 (where a woman is introduced as a “widower,” or is this a new kind of political correctness?) , though the discussion of “subway” stations on Chicago’s south side (there actually are none south of Roosevelt Rd), and the “Department of Parks and Recreation” (no such agency in Chicago, folks, you mean the Chicago Park District), to the hustle that pays $50/night, or is it $50/week, depending on which part of page 312 you believe. Maybe that can be fixed in the next edition.

Is this why gov't can't "solve" the "affordable housing shortage?"

All ecosystems, including financial ones, start out simple and become more complex. For governments working in affordable housing this is exasperating; no sooner is one initiative added to the repertoire than another market niche appears, another funding gap arises, another stakeholder group presses a valid claim. Government is constantly hoping or the universal programme that can simply be created and then funded increasingly hereafter, but this is impossible because ecosystemic complexity continuously increases.

So says David Smith, “founder of the American Affordable Housing Institute and a leading expert on international housing markets,” in a paper for the [apparently unrelated] Smith Institute.

The AAHI no longer exists (though there is a sort of successor here.)  So I’m not sure where to ask the question: Have you considered the elimination of taxes on housing, and all other useful products of labor, as a way to address the problem?  Why wouldn’t that provide a permanent solution?


Better job by leaving public housing?

Can you alleviate poverty by relocating housing-aid recipients away from concentrations of poverty? Georgists know that this can’t solve the problem, but perhaps it could help the individuals who are relocated.

But according to a recent report from Northwestern University  “participants’ income or employment outcomes were not affected” by the move.  Here is an abstract, and here is the full report (pdf).