August 20, 2014
Ithaca, NY 73°F | Rain

Columns

Economic claims overlook industry

The New York Times reported April 22 the U.S. was tied with Canada for highest median income, at $18,700, in 2010. Canada appears to have surpassed us at this point. The sad part is this number has been the U.S. median income since 2000, while the median income for Canadians grew by 20 percent in that same period of time. This scary report points to two causes for these problems, but both are definitely false.

The first alleged factor is that high education costs make education too hard to obtain in the U.S. But education is so accessible through student loans that there has been a huge tuition bubble. The problem is there are now more people with degrees than there are jobs that require higher education. According to the Associated Press, 53 percent of college graduates under the age of 25 are currently unemployed or underemployed. We have too much education and not enough demand in the market.

The second alleged factor is that companies in the U.S. do not redistribute their profits as much as those in other countries do. It’s true that top American executives make more than their foreign counterparts, but the corporate tax rate in the U.S. is 35 percent, one of the world’s highest, so redistribution is no problem.

It is, in reality, the service-based industry the U.S. supports that is to blame. A service-based economy cannot create a wealthy middle class because it does not allow for increased productivity or profits. A manufacturer, like a car factory, can produce cars when demand is low and sell them when demand is high. But a service job, like bartending, requires immediate service to the customer — with no customer, there is no productivity. Therefore, service industries produce significantly less money than manufacturing or agriculture.

Sadly, non-service jobs that produce a robust middle class are constantly fleeting. Since 2001, the U.S. has lost 42,400 factories, 75 percent of which employed 500 or more people.

But just because we are being surpassed by our neighbors does not mean we should mimic them. We need to eliminate those policies that left once great American cities, such as Detroit, in economic ruin. We must cut regulations and barriers for entry to invite existing companies to set up shop within the nation and also easily allow for new competition. We need to produce a business-friendly environment so we can have job growth. We can no longer chase away businesses that give people incomes that allow them to enter the middle class.