ECONOMY SEPTEMBER 5, 2011
-
Read Later
READ LATERAvailable only to subscribers. SUBSCRIBE TODAY
-
Listen
ARTICLE AUDIO
- Font Size
In his book The Greatest Generation, Tom Brokaw paid homage to the generation that emerged from the Great Depression to fight Hitler and other forms of tyranny. Their efforts were all about sacrifice so that their children could enjoy a better life. They sacrificed on the front lines of battle and back home in the factories that produced what was needed to wage war.
We, on the other hand, are members of the Baby Boom generation (the authors are both 60 years old)—a cohort that is hardly known for its selflessness—and we can’t help but wonder: What, exactly, happened to the children of the “Greatest Generation?” Where is our willingness to sacrifice so that our children can enjoy a life even better than ours?
RECENT POLITICAL DECISIONS have rejected sacrifice in favor of a what’s-in-it-for-me approach and, in the process, polarized the nation. To make matters worse, our leaders and opinion makers have convinced too many of us, conveniently, that our self-interest is also in the interest of the greater good, implying that no compromise or shared sacrifice is ever needed. Here are just a few examples:
1. We are fighting three wars (with a “volunteer” army) while refusing to pay for them, effectively passing the cost of financing the wars to the next generation.
2. We have an energy problem that is both a supply and a demand problem. It threatens our environment and our security, yet no politician seems willing to ask the American public to sacrifice to help solve the issue.
3. In the face of an avalanche of debt and deficits, congress and the Obama administration extended the Bush tax cuts through 2012, passing even more financial hardship to our children.
4. The country binges on debt to buy homes that we cannot afford. The political reaction (especially from the left) is to try to artificially support housing prices. The effect is to postpone a market-clearing end to the decline in prices and to keep housing prices at above-market levels for younger families who might hope to afford a home.
5. We refuse to means-test Social Security and Medicare or to come up with a more reasonable method of inflation-indexing Social Security. We will ask the next generation to pay for all of this through higher taxes and slower growth.
6. Unelected leaders came up with a bold long-term solution to our fiscal problems: the Bowles-Simpson Deficit Reduction recommendations. It ended up dead-on-arrival, however, because our elected leaders do not dare ask the nation to sacrifice for fear that they will be at risk in the next election. Again, better to lay hardships on those too young to vote than to ask today’s voters to sacrifice.
So how did the Greatest Generation, known for its sacrifices, produce a generation so focused on economic self-interest and so seemingly unwilling to sacrifice for the good of the country? That is a bit of a mystery, but we will put forth two theories.
First, our generation generally avoided military service. As we baby boomers became adults, less than 1 percent of the population served in the military. In WWII, that figure was over 10 percent. Two of the great lessons of military service are one, country before self and two, trust in leadership and authority. With relatively few of us sharing the bonds, lessons, and sacrifices of military service, perhaps there is little widespread experiential counterbalance to each of us pursuing only our self-interest.
The second theory, on the other hand, goes deeper into our country’s structural economic problems—those that have precipitated the decline of a middle-class majority and the ascent of more powerful, but divergent self-interest groups.
Indeed, if we examine the economic and political principles that have worked together to serve us so well for 200 years, we see that today they seem to be working against each other instead. Our economic foundational principles are grounded in the free enterprise system as so beautifully described in Adam Smith’s Wealth of Nations. Smith posited correctly that the greatest amount of societal wealth would be created through the invisible hand of the marketplace if individuals (and enterprises) were allowed to pursue their economic self interests. Our political foundational principle, on the other hand, is “one person, one vote.” Our founding fathers believed that if we give a political voice to the Great Majority, diverse interest would produce a fair and just society.
There will always be tension between those with wealth, trying to keep it or get more of it, and those without wealth, trying to get it. In times of general prosperity, however, the two sides strike a balance. A democracy, with its one person, one vote philosophy, provides a voice in government not provided by an economic system that skews rule-setting toward those with the most capital.
Our nation has been successful precisely because we have found ways to mitigate the concentration of wealth, produced by our free enterprise system, through tax and social policies that benefit a majority of voters. (If those policies do not directly benefit a majority of voters, they at least give the majority a “stake” in the system through various forms of equal opportunity and upward mobility.) It is this great middle-class majority that provides societal balance—the human resources needed to sustain our competitive advantage, to fight to keep our nation independent, and most importantly to maintain the majority consensus needed to sustain the nation for the next generation. If the society works well for the majority, the majority will be willing to sacrifice to perpetuate the society.
Over the last 30 years, however, the way America participates in the global economy has dramatically changed. Most of the changes have reduced the likelihood that the U.S. will generate sufficient numbers of good jobs to support the families who hope to rely on those jobs to provide a middle-class lifestyle. The drivers of this shift include, but aren’t limited to, the following factors:
1. Technology has been eroding the number of workers required to perform a given task.
2. The combination of the emergence of more formidable foreign competition, cheap foreign labor, and technology has driven still other jobs out of the U.S. economy.
3. Real wages for the middle-class worker have been declining, while incomes for those in the top 1 percent have skyrocketed.
4. The aging U.S. population and medical advances have produced costlier healthcare, and more people needing a safety net.
5. There are far fewer workers today supporting a much older population.
6. The economic and societal benefits of the middle class are shrinking with the real decline in wages and diminished real and perceived opportunities.
These factors have led to the decline of the great, middle-class majority and the ascent of more powerful, but divergent self-interest groups. We now elect leaders who do not reflect a Great Majority consensus, but more and more divergent self-interest groups, as a result. Today’s politicians can get elected by appealing to narrow interests, as well as by convincing their constituents that all can be well if only someone else is asked to sacrifice. Someone else’s children will fight the wars; bankers can continue to make huge salaries while others stand in unemployment lines created by bankers’ risky actions; Medicare subsidies will continue to be paid while there are fewer and fewer workers to pay those bills; congress can provide tax cuts for everyone while they vote to incur the increased expense of foreign wars.
THE SIXTIES GENERATION, our generation, taught the world that much good can come from organizing groups in support of causes for the greater good. Somewhere along the way, the greater good has been ignored, while organizing for self-interest continues to have great success. The information age has made it much easier to organize, influence, and empower narrow self-interest groups.
Politicians, for their part, have always promised much more than they could deliver, but now it appears that something has changed. Political leaders on the left and right are finding it much harder to compromise, while those in the middle (think Senator Evan Bayh) lose interest in fighting a losing battle. Few people are aware that Ronald Reagan raised taxes more than 10 times, while welfare reform was accomplished under Bill Clinton. The downside of the communication age is to make it difficult for today’s politicians to close the doors and deal with each other for the greater good.
In the end, however, we remain optimists. Eventually, some leader will emerge who understands and can communicate that:
1. Free enterprise (with reasonable tax rates and limited regulation) produces the largest and fastest growing economic pie; and
2. Unless a vast majority of Americans have a stake in our economic system (some combination of safety net and equal opportunity), our political system will eventually undermine and emasculate our free enterprise economic system.
It is not too late. We need leaders willing to appeal to our best, not our worst, most selfish instincts. We must reject leaders from either political extreme who seek advantage by pitting one economic class against another. Our parents left us with the legacy of The Greatest Generation. It would be ironic for our generation, which has profoundly influenced social change for the greater good, to leave a legacy of self-centeredness that leads our nation to financial and social ruin. A bit of that self sacrifice that our parents showed would go a long way to ensure a different historical judgment.
Steve Krause is the Director of Finance at the University of Chicago's Booth School of Business. Matthew Paull retired from the CFO position at McDonald's Corporation in early 2008 and now serves on several boards.
46 comments
Fantastic article. The last two bullets are indeed the key.
- seattleeng
September 5, 2011 at 2:00am
Note the identity of the authors, particularly University of Chicago, and of the first commenter. With this information, the article could write itself. We don't know what these two think of as "reasonable" tax rates and "limited" regulation (limited to or by what?), but I would be very surprised if what they consider limited produces any of the fastest growth or a broad stake in the economy or protects the general population from having either its wealth or its finances preyed upon by the self-sacrificing wealthiest. The authors also conveniently fail to note just where on the political spectrum the opposition to everything they consider necessary sacrifice lies. The failure of Bowles-Simpson was in calling for sacrifice from working people, not in exchange for sacrifice from the wealthiest, but in exchange for even lower taxes at the top. This is the right-wing idea of shared sacrifice. When Obama, to the shock of the left, offered big cuts in entitlement programs in exchange for modest increases in taxes, the reaction from the Republicans was complete rejection. This article is a nice fairy tale, a parable really, that bears no relationship to either economic or political reality.
- roidubouloi
September 5, 2011 at 7:01am
I am not at all a Robert Reich fan. But his article in the Sunday Times about the negative affects of highly unequal net income distribution on economic growth is a much better piece than this. Reich notes, as I have many times here, that high growth is historically associated with relative income equality and high inequality is associated with fragile demand and epic busts. No matter. The True Believers of libertarianism in its various flavors will continue to insist, contrary to such evidence as we have, that our tax system is far too progressive, although, with all taxes considered, it is barely progressive at all and the less progressive it becomes, the weaker our economy as explained by Reich. "Shared sacrifice" means making taxes regressive. "Limited" regulation means that if industry poisons you or steals from you, you have learned a valuable lesson for the future, if you have one.
- roidubouloi
September 5, 2011 at 7:13am
"We have not fixed our financial system, or reined in the havoc that it can wreak. And there remain countless innovative ways for genius—stimulated by greed and groupthink and an open unregulated field—to lead us seriously astray and into more great danger." Simon Johnson, right here http://www.tnr.com/book/review/the-worst-and-the-brightest ___________________ Must be because we are "limiting" our regulation as these authors wish.
- roidubouloi
September 5, 2011 at 7:27am
What the hell is wrong with TNR? It's turning into the kinder, gentler National Review. Does this reflect a conscious editorial policy, or is it more that the only people the magazine can enlist to contribute essays are right-leaning nonprofessional writers with a pro-business axe to grind? By the way, the concept of "the greatest generation" is one of the bigger crocks of shit ever to power a book to the top of the Times best seller list. I deal with a lot of octo- and nonagenarians in my medical practice, and while the real assholes have for the most part managed to knock themselves off already with booze and cigarettes, my experience with old people suggests that the WWII generation has no particular monopoly on virtue. And if you're in need of any kind of independent corroboration take your pick from Catch-22, The Naked and the Dead or Day of the Locust. Also you could remind yourself that the people manning the fire hoses in Birmingham and ordering (though not in so many words) the liquidation of Mai Lai were, you guessed it, from that "greatest" of generations.
- AaronW
September 5, 2011 at 8:33am
Irony jumps out at the reader of this essay, as the authors blame "divergent self-interest groups" for our current mess then set out to divide America between the selfless older Americans and us (I'm the same age as the authors) selfish baby boomers. I suppose that's conventional wisdom, but I don't see how it advances the authors' case. Let's consider the evidence. The authors rightfully point to rising health care costs, in particular for Medicare, as a major contributor to our fiscal mess. Who uses Medicare? Baby boomers? Or the greatest generation? The authors also point to social security and the boomers' efforts to impose on the next generation the cost of their retirement. Maybe the authors missed the enormous payroll tax increase passed in 1983 and phased in over the next 25 years, a tax increase that hit working class baby boomers hard, while (supposedly) assuring the solvency of social security for the greatest generation. This isn't to say that the authors don't make valid points or potentially helpful suggestions. But don't preach to us boomers about the harm of "divergent self-interest groups" while dividing Americans between selfless older Americans and selfish baby boomers. Of course, the authors much prefer a division of Americans based on differences of age and for us to ignore the elephant in the room: "We must reject leaders from either political extreme who seek advantage by pitting one economic class against another." Age, yes, economic class, no. The authors should be sent to their rooms. [A note to the editors: those are extremely well-preserved baby boomers in that photograph. Or is the photo intended to reflect the division of America according to economic class, those in the photo being members of the wealthy class. If the latter, well done, editors.]
- rayward
September 5, 2011 at 8:45am
I thought the same thing about the photo, ray. Maybe it's a file photo of boomers enjoying a polo match back in 1979. The crimson, off-the-shoulder pant suit almost looks like it would be at home in the late 70s and the white sun dress is simply timeless, but the women's straight, center-parted hair belongs to the early 70s (or the to present) and the men all look much too clean cut to have been having clenched-jaw discussions over whether the Hollywood vulgarian Reagan was likely to beat their man George H W Bush out for the Republican nomination.
- AaronW
September 5, 2011 at 9:12am
as I recall it, the great inflation of 1973-75 had a profound impact on Boomers just out of college. By the time of my fifth college reunion in 1978, I was stunned at how so many of the most activist before 1972 had since gotten MBAs so they could concentrate on making money. There are really three sub-groups of Boomers: 1) born 1946-1950 who were able to get jobs and buy 1st homes before the Great Inflation, 2) 1951-1958, the Middle Boomers who entered the work force only to be pounded by the adtermath of Great inflation - the era of leveraged buyouts and change in paradigm of job security and de-industrialization, and 3)1959-1964 who never heard JFK's "ask not" message. silly article - no mention of sex, drugs, rock and roll...
- K2K
September 5, 2011 at 9:16am
rayward: "...the authors missed the enormous payroll tax increase passed in 1983 and phased in over the next 25 years, a tax increase that hit working class baby boomers hard, while (supposedly) assuring the solvency of social security for the greatest generation. ..." Too true, except I thought those 1983+ FICA increases were to secure the lockbox for the Boomer retirements. The Clinton-era surpluses were entirely from breaking that lockbox and including those planned SocSec surpluses with general federal revenue. and the Bush43 then stole it all with his irresponsible tax cuts in 2001 and 2003.
- K2K
September 5, 2011 at 9:22am
"What the hell is wrong with TNR? It's turning into the kinder, gentler National Review" My sentiments exactly and why I'm likely to let my subscription lapse when it comes due next year. It looks like the shift happened not long after the new new editor-in-chief was appointed. My guess is Cohn and Chait's days are numbered if they keep it up. Same kudos for Roid, Ray and the rest of AaronW's posts. I vividly remember the "greatest generation" types being the most vicious towards Obama and ACA in 2010, not the boomers. To hell with having their children and grandchildren having a chance at affordable health care. Same with Social Security. That was also the same generation in the 60s and 70s that set up the decline of American industry and gave us the likes of Reagan. "Greatest generation"? More like the "I got mine, you go die in a ditch" generation.
- tmmats
September 5, 2011 at 9:53am
This whole piece sounds like a call for the working class to give up their livelihoods on behalf of the "greater good," while the business-owning and stock-trading elite reap an increasing share of the harvest. Think of it this way: if you are 50 right now, you were born in 1960 or 1961 depending on the day of the year. You (probably) graduated from high school in 1978, entering the job market during a prolonged and severe economic slow-down. (In my dad's case, this called for moving from California to Texas to follow the construction industry - and, when that dried up, he collected aluminum cans along the side of the road to get by). That being the case, your early adult life was probably pretty meager, with high chance of insecurity through about 1985...and then 1990 rolls around, and you're stuck in another recession. So, by 1995, a 35-year-old has spent roughly two-thirds of her or his adult life in a weak labor market. Yeah, spoiled brats indeed.
- whyamihere
September 5, 2011 at 10:33am
There are some doozies back there in the thickets of history, particularly across Europe in the late antique period and in the century after the Reformation, but when you consider the global Great Depression, gulag-enforced communism and agricultural collectivization, the Holocaust, the Second World War, the inauguration of atomic arsenals, the genocidal processes of decolonialization, to name a few of its achievements, it seems to me pretty hard to think of a worse generation than "the greatest generation." But my generation is really just catching its stride -- we'll give 'em a run for their money yet!
- rmutt
September 5, 2011 at 11:37am
Roid writes: "We don't know what these two think of as "reasonable" tax rates and "limited" regulation (limited to or by what?), but I would be very surprised if what they consider limited produces any of the fastest growth or a broad stake in the economy or protects the general population from having either its wealth or its finances preyed upon by the self-sacrificing wealthiest." Was the regulation under Clinton reasonable? Were the tax rates under Clinton reasonable? Yes. And yes. And Clinton helped us crank out more millionaires than any other president.
- seattleeng
September 5, 2011 at 11:55am
As for the golden age of Clinton, sure let's start by going back to Clinton's tax rates. Regulation? We are in an economic mess in large part because of Clinton's financial deregulation. Regulations are not measured by the pound. The entire meme of "limited" regulation is PLAIN FUCKING IDIOTIC! SUITABLE ONLY FOR MORONS. The questions should always be, what is the problem to be addressed, how can it best be addressed, what is the cost of doing so, what is the cost of not doing so, what are the alternatives? Then you use sound judgment, free of secret lobbying by industry, in public, to find the best solution you can. And then you remain open to adjusting the solution if it is either not solving the problem or creating other problems that you want to avoid.
- roidubouloi
September 5, 2011 at 12:44pm
Roid writes: "But his article in the Sunday Times about the negative affects of highly unequal net income distribution on economic growth is a much better piece than this." I'd say the first page of the Reich article was good as he recapped history, but the second page was a bit wanting. He writes "Germany has grown faster than the United States for the last 15 years, and the gains have been more widely spread. While Americans’ average hourly pay has risen only 6 percent since 1985, adjusted for inflation, German workers’ pay has risen almost 30 percent. At the same time, the top 1 percent of German households now take home about 11 percent of all income — about the same as in 1970." But this just isn't true. And it is these data points that make the reader think there is always greener grass some other place. Articles within Germany paint a different picture: "The gap between rich and poor in Germany is widening, while the group of those on middle incomes is shrinking. This is the key finding reached in a new study by the German Institute of Economic Research (DIW) on income distribution in Germany. The DIW researchers regard their study mainly as a warning of the dangers this presents for social stability. The study clearly shows that for about 10 years the number of the poor has grown strongly, while the layer of wealthy citizens has increased steadily, albeit more slowly. The poor become continually poorer, while the rich become even richer. " What we have is a world wide lament that smarter people that work harder will continue to amass money at a faster rate than less smart people that aren't as motivated. New flash: That has always been true. As previously established as irrefutable, the top 1% have shown steadily increasing gains since at least 1913. This is nothing new, it has been happening since the beginning of time. It happens in the US, it happens in France and Germany, it happens in purely socialistic societies. It was happening in pre-historic times too.
- seattleeng
September 5, 2011 at 1:22pm
The gist: The economy sucks, blah, blah, blah, blah, paean to the past, blah, blah, blah, blah, it's all the fault of those damn meddling kids, blah, blah, blah, blah, our only hope is Rick Perry. WTF, TNR?
- janus
September 5, 2011 at 3:32pm
What I most resent about this and similar articles is the prescription of some form of abstract moral renewal as a cure for our economic and political woes. It's a sure sign the went to the David Brooks School of Soft-Core Conservative Bullshit.
- AaronW
September 5, 2011 at 4:34pm
the AUTHOR went...
- AaronW
September 5, 2011 at 4:35pm
Boomers need Twelve step program. Step 1: Stop buying Beemers from BMW no matter how much you lust for one... Step 2: replace all your granite counters with Formica in order to relive the 1950's. Step 3: update your Netflix queue. Steps 4-12: Watch Harry S Truman at the 1948 convention in Philadelphia: http://www.youtube.com/watch?v=S6eAxG7Y47Y&feature=related October surprises: GOP debates winnow the field and the Dems decide to nominate Christine LaGarde, figuring it will take three years for Donald Trump to force her to produce her birth certificate. when all else fails, listen to Ronald (the Liberal Democrat) Reagan's radio campaign message for Truman and Hubert Humphrey in 1948: http://www.youtube.com/watch?v=uJDhS4oUm0M&feature=related
- K2K
September 5, 2011 at 8:43pm
Roid writes: "The questions should always be, what is the problem to be addressed, how can it best be addressed, what is the cost of doing so, what is the cost of not doing so, what are the alternatives? Then you use sound judgment, free of secret lobbying by industry, in public, to find the best solution you can." This we can agree on
- seattleeng
September 5, 2011 at 9:02pm
Be afraid, be very afraid, etc. I am a "boomer," I suppose, though at my age there is not very much "boom" left in me. More like the hiss of air leaking out of the balloon. As I don't have that much left as far as years, I would be consoled about the coming collapse of civilization by knowing I probably won't see it, but I do worry about my grandchild. And as a human I have a bit of sentimental attachment for the "old school flag" which I guess is my DNA, though as Kipling realized in his descripton of the "bandar-log" [monkees] in the Jungle Book, we are a rather vile species. But then we are the only [sentient] species we have. No surprise that the other species that hang around with us the most--starlings, rats, lice, coyotes, crows, hyenas, jackals, etc.--are pretty bad characters as well.
- skahn
September 6, 2011 at 8:35am
Oh great!!! "Some leader will emerge....." Madison said we need a government of laws not men. Hoping that some white knight will appear to save us presupposes that our problems are not structural and, even if that were not the case, the person who comes to save us isn't just as likely to be evil. Please spare me this BS. I hear enough of it on the call in shows on C-SPAN.
- poldpf
September 6, 2011 at 11:59am
Oh please. This article is just absurd. SOME baby boomers have done very well. MANY of us have taken it in the chops, through numerous recessions, loss of jobs, loss of careers, loss of retirement portfolios, loss of health, the ability to work full time either through illness, disability or the simple lack of JOBS especially for older people. Wages have fallen sharply vs the cost of living. As for "selfishness," give me a break. We're trying to help the environment, the poor, and we're poor ourselves and looking forward to a lousy future. Many of us are already dead. Meanwhile, "the Greatest Generation" never relinquished power. Not really. Pappy Bush, James Baker? Gimme a break.
- Sophia
September 6, 2011 at 1:25pm
To elaborate on my last comment: did "the baby boomers" set in motion the disaster that put Bush II in the White House? Who powered the Reagan phenomenon? Older people that's who. My own dear dad, supposedly a Democrat, voted for Reagan. People bought wholesale into voodoo economics. Look at the skewing of income since the late 1970's. This has had appalling long range consequences. Look at the Court. Look at our economy, the wars. This piece should be about our PARENTS. We did not have that kind of power, period! By the time Clinton got in, it was too late already, the scene had been set and the curtain rose when Gore was shunted aside from the office he'd rightfully won.
- Sophia
September 6, 2011 at 1:30pm
I'm gonna make one more rant. Vietnam, who caused it, who went and fought? GIVE ME A BREAK. TNR this piece is a disaster and it is completely tone deaf, blind to the reality out here. Are you talking to the 1% who has the polo ponies or what????
- Sophia
September 6, 2011 at 1:32pm
Now it can be told. My dad was a member of the 'Greatest Generation" and he was one of the biggest self-centered jackasses I ever met. I suspect he was the exception, not the rule. His life story was truly admirable until you met him. Born 1917 as a German Irish kid in a town that still looked down on the Irish. From the sounds of things, his childhood was an ordeal. Never had a remote chance of going to college. He went to war, missed the big action, but made a good faith effort to get into it. Came home, buckled down, raised a family, rose through the ranks from the shop floor and eventually retired from a responsible technical position that would today require an engineering degree. This is where the music is supposed to start, right? This guy had no more sense of shared purpose, no more sense of necessary sacrifice, no more compassion for people from similar wretched backgrounds than Bart Simpson. And nowhere near his sense of humor and irony either. He died as a bitter, vituperative man who had been led to self sacrifice because it was the only available option. And he bitched about it the whole time. Surely, the US would be a better place if a larger portion of the electorate actually gave a damn about their neighbors, their descendants, anybody but themselves in the narrowest sense. I'd love to live in such a country, and would be willing to make very significant sacrifices to get there. But please don't blow smoke up my ass and tell me that such a place existed here at one time and was somehow lost.
- gwcross
September 6, 2011 at 2:10pm
Generalizations are very dangerous. Generalizations about racial groups, religious groups, sexual groups, and generational cohorts seldom provide much in the way of accurate and useful information. To talk about the "boomers" or the "greatest generation" and so on probably does not give us much more useful information than talking about blacks, white, Hispanics, men, women, teenagers, and so on. As others have hit upon, this article is not TNR's finest moment in publishing.
- skahn
September 6, 2011 at 3:44pm
I agree that this article is a disaster. And, does anyone else find it curious that the "greatest generation" is compared to the boomers, but no mention is made of the "silent generation"? Actually, it is the Silents who are the main beneficiaries of Medicare and SS right now. They are people aged 66-84 (birth years 1927-1945). And it is they who raised the biggest cries against "Obamacare" and who demonstrate little interest in providing for the young. I have seen this in action in the resistance of many of this generation to raising property taxes to pay for schools and teachers. The silent gen. does include many leaders of the civil rights movement, so the Silents are no more monolithic than the boomers or the "greatest". Note that there has not been a president from this generation - failed silent gen Pres. contenders include John mcCain, Mondale, Dukakis, Nader. So, this article gets so much wrong- even the title "children of the greatest gen" which assumes the children are all boomers.
- merolph
September 6, 2011 at 10:37pm
Ah, the bullshit never ceases, seattle. I admit that I just don't have enough time in the day to keep up with the crap you put out here. But on the subject of Germany, the US ranks 93rd in the Gini coefficient for income equality out of 134 countries analyzed. Germany ranks 10th. Income there is far more equitably distributed. As for your claims about the burden of so-called progressive taxation in the US, after incomes taxes and transfers, our Gini coefficient would get us down to about 83rd (CIA figures). Shares of Income and Share of all taxes paid by quintile: Income 3.5 7.1 11.6 18.9 59.1 All taxes 1.9 5.0 10.2 18.9 64.3 Barely progressive, which is why the after-tax Gini coefficient doesn't budge our ranking much. CEOs and Wall Street make millions because they are smarter and work harder? Only at theft. Your persistent claim that the income share of the top 1% has a secularly increasing share? Wrong again. It declined from 20% in 1928 down to 8% in 1963, held steady until about 1980, then started to climb again with the plutocratic Reagan administration and its supply-side nuttery. The income share of the top 10% was flat from 1943 to 1980. The sharp decline in the share of the top 1% began in 1940. See Saez in the Journal of the European Economic Assoc. And which was the period of greatest economic growth in the US? Growth in real per capita GDP 1929 to 1940, 0.84% per year geometric (compounding) average. 1940 to 1980, 2.7%. 1980 to 1007, 2.0%. 1980 to 2009, 1.7%. The fastest growth coincides with falling or stable income share for the wealthiest. Your fairy tale about the highest earners lifting all boats with their brains and effort is just that, seattle, a fairy tale, fiction, nonsense, bullshit. Robert Reich has it correct. Growth comes from broad demand, and broad demand requires relative income equality. High income inequality stifles growth. The combination of slow growth and greater income inequality suffocates the middles class. But NOTHING will stop you from repeating the libertarian lie. Certainly not the facts.
- roidubouloi
September 6, 2011 at 11:45pm
Curious that periods with a high absolute top rate (40-90%, say) coincide with a flattening in the pretax income distribution, while those with a low top rate (sub 40%?) coincide with a steepening. Yet wealth (not necessarily income) distribution persists, as it does even in Sweden, Denmark, and Switzerland. Just as likely, pretax income distribution is a dependent variable of the tax code, and you've got your variables mixed up. One could also easily argue that the increasing steepness of the effective tax rate across quintiles (CBO 1979-2005, for instance) has both increased revenue volatility and decreased growth. Or perhaps there are a thousand possible variables - but no, you can decipher everything from one simple set, just as Reich has done. Correlation does not imply causality, unless the statistic of choice fits your idealogical predisposition, of course.
- ds111
September 7, 2011 at 1:10am
If you understand real macroeconomics, rather than the libertarian fantasy version, it isn't curious at all. Highly progressive rates keep more disposable income in the hands of the middle class; more disposable income in the hands of the middle class means both more and sustainable demand, as opposed to consumer debt-fueled demand; sustained high demand results in a tight labor market; a tight labor market causes a high wage share of output; high wage share results in flattening of pre-tax income as well. So, yes, pre-tax income is in part a dependent variable of the tax code. However, if one looks at actual data rather than simply proclaiming the outcome, as supply-side nuts and libertarian wackos do, then it is clear that sufficient progressivity in the tax code to prevent income from pooling in the hands of the investor class is the best formula for sustained growth and low unemployment. And there is a strong theoretical explanation for why this is so. The libertarian fantasy -- low tax rates producing incentives to innovation and hence growth -- sounds nice. Fantasies do. It just does not happen to have anything to do with the real world. "Innovation," meaning chiefly increases in labor productivity by substitution of capital for labor, is the capital response to wage pressure, and wage pressure requires a tight labor market, and a tight labor market requires broad demand, and that requires significant income equality. High income inequality sucks demand, and hence the life, out of the economy. It is astonishing to me the lengths to which libertarians will go to avoid accepting that reality has nothing whatsoever to do with their ideological claims about how reality is supposed to be. "Atlas Shrugged" is a novel, fiction. It is not an economics treatise. And here we go again. What increasing steepness of the effective tax rate across quintiles? According to the CBO table, the sharpest decline in the total effective tax rate from 1979 to 2006 was for the top 1% of earners, and at just the time when their pre-tax income share was also increasing. Read the goddamn table instead of shooting your mouth off with the usual libertarian bullshit. Fer chrissakes. Can you people never look at the actual data rather than your reinvention of it to coincide with your ideology? Correlation does indeed imply causality, although the relationship remains probabilistic, not absolute. And it can imply common causality rather than direct causality between correlated events. Scientific confidence is based on the accumulation of evidence, certainly including correlation when direct experiment is unavailable. One thing is for sure, however. If the data comes out the opposite of your theory, it is your theory that is wrong. Unless you are a libertarian. Then you just keep proclaiming your theory and that the data support your theory even when they are the exact opposite of what your theory predicts.
- roidubouloi
September 7, 2011 at 1:43am
Let me make that simpler. One can argue that, despite the correlation, there is insufficient evidence upon which to accept Reich's thesis. But, in the case of the supply-side narrative, all the available evidence goes the other way, in some cases spectacularly so. How can one possibly continue to argue for a theory of economic life that is contradicted by all available evidence while rejecting as inadequately proven a theory that at the very least comports with the available evidence? This is why I refer to supply-siders as wackos. They are completely indifferent to evidence, believing the same thing no matter how consistently contradicted by reality.
- roidubouloi
September 7, 2011 at 1:50am
Just a couple of notes: (1) The assertion that "Two of the great lessons of military service are one, country before self and two, trust in leadership and authority." should be parsed closely. It was precisely as a result of the distortions, dissemblings, and outright lying of those in the positions of leadership and authority during the escalating entanglements in Southeast Asia that we in the Baby Boomer Generation lost our confidence in and respect for that "leadership and authority." The Gulf of Tonkin Incident, the My Lai Massacre, Nixon's Secret Plan to End the War, the Pentagon Papers? Does anyone here remember the March on Washington; the Moratorium; the Christmas Bombing; the Credibility Gap. Look at what it took just to end the segration laws and pass the Civil Rights Act. Respect for leadership and authority as to be EARNED. (2) Where have the attitudes that "Someone else’s children will fight the wars; bankers can continue to make huge salaries while others stand in unemployment lines created by bankers’ risky actions; Medicare subsidies will continue to be paid while there are fewer and fewer workers to pay those bills; and congress can provide tax cuts for everyone while they vote to incur the increased expense of foreign wars." come from? Virtually without exception, they are either the fundamental attitudes of, or the results of the actions taken on behalf of, the Plutocratic Class---who in the last 30 years have taken over the media, the levers of government, and the judiciary, and have wrought their special vision of paradise on the backs of every body else. To assert, as Paull and Krause do, that "We must reject leaders from either political extreme who seek advantage by pitting one economic class against another." is to falsly characterize both sides of the political spectrum. ALL the class warfare is coming from one side only, and this bullshit attempt at evenhandedness - even if meant only as a toss-away line, has been for too long a part of the problem.
- bonsaibush
September 7, 2011 at 12:58pm
"We need leaders willing to appeal to our best, not our worst, most selfish instincts. We must reject leaders from either political extreme who seek advantage by pitting one economic class against another." In addition to the many other flaws that posters here have already pointed out in this silly article, this quote further reflects the authors' alienation from political reality. Whatever one thinks about Obama's policies and political strategies--and count me among those who feel they leave much to be desired--he has in fact tried to demonstrate the kind of leadership and approach that the authors yearn for. And he's nevertheless been shot down by Fox, the Republican Party, etc.
- Thunderroad
September 7, 2011 at 4:31pm
Thanks for the suggestion. The CBO tables produce a trove of information ripe for data-mining. Your typical ideologically driven conclusion focuses on two aspects: the stated income and tax rate of the top 1%. Two out of what, a thousand variables? Let's see, the top rate in 1925 dropped from 60% to 25%, in exchange for large exemptions and suddenly the taxable income of the top 1% shot up (Reich); in 1998, capital gains taxes were lowered, and suddenly the top 1% produced a gusher of taxable capital gains income; in 2002, the top income tax rate was also lowered, and voila, the ratio between realized wage & business income and capital gains reversed and rose sharply again. Far from the "rich" earning more, they have simply shifted income, the logical, or shall I say empirical, conclusion being that the tax code drives the tax decisions of the highest earners, and voila, you have now solved your independent variable mystery. Your legitimate gripes about our lower growth would also appear misplaced. Some other possibilities: the increase in deposit insurance in the late 70s, which encouraged riskier lending concomitant with an increase in public risk; the increase in state and local spending from the mid 60s gradually from about 5 to 14% of GDP, with much of the increase being driven by federal "cost-sharing" mandates; the shift in federal spending, still about 20% GDP, from investment to transfers (transfers rising from 10% to 60% of fed expenditures). During the growth period you lionize the Feds spent big on the very infrastructure we all think worthwhile - an ideal federal function - but as big ticket fed spending (and much st&loc spending) shifted from infrastructure to transfers, growth has declined. Oh, and the explosion of wealth and power in the DC area has coincided with the slower growth you decry. You think you are an empiricist, but from where I sit, you are an ideologue, finding a convenient best fit, and attempting to railroad disagreement. I understand you desire fed spending on both transfers and infrastructure, and if it be 30, or 40, or 50% of GDP so be it. But if empiricism suggests that growth would slow, and our advance in living standards would stall, would you still believe? Re: a past post. Dig holes and fill them in? Why don't we all do that? I've always hoped he was tongue in cheek. I enjoy and respect your views, well, perhaps more the way you present them, but you can't seriously believe that this is the ultimate underpinning of Keynes, can you?
- ds111
September 7, 2011 at 11:43pm
Capital gains can be timed. The "decision" of high earners to shift income between classes is not due to anything Where you sit is in pool of ignorance where you don't make claims that cannot be fully established by ambiguous evidence, but claims that are directly contrary to ALL of the available evidence. There is no correlation in time between growth and the "shift" from direct Federal spending to transfers. Transfers are neutral to positive in demand, unless they shift wealth upward or unless you think, based on no evidence at all, that people who depend on work to live stop working when they have to pay payroll taxes. Other than your libertarian insistence, because you believe that transfers are immoral, there is zero empirical evidence that transfers downward slow growth and lots of empirical evidence that transfers upward slow growth. High growth is associated with income leveling. Slow growth is associated with increased skewing of the income distribution. That is just the fact. Could it all be due to some other events that are correlated in time, say sunspots? Yeah, sure. But one needs to have at least a plausible explanation for the channel of causation. The transfers you complain of have been overwhelmingly from the laboring class to retirees. What is the channel of causation that leads to slow growth as a result of those transfers? Please explain. Does it matter for demand whether a retiree spends the money or the laborer who paid the taxes keeps them and spends the money? Why would that matter? And let me cut off your first pass before you waste any time. There is no evidence that take home pay is too low to induce the labor that capital wants. Capital is relentless in trying to stifle labor share. Not what you do if you think you cannot get enough labor. If there should ever be empirical evidence that government spending is inimical to growth, then it would surely be worth considering how much in the way of public goods and equity is worth how much growth. There is no such evidence at the present time. Keynes was making a perfectly valid point, not tongue and cheek at all, that you fail to understand. From the standpoint of generating demand, paying people to dig holes and fill them in again would work just as well as building highways. That doesn't mean Keynes thought we should waste productive resources accomplishing nothing. Only that what is accomplished with the labor is not relevant to the demand created. We have in fact one great real time experiment: World War II. 12 million people, and enormous productive resources, were devoted to blowing things up in Europe and the Pacific. The demand created wrenched us finally and firmly out of the Great Depression. It did not matter at all that the output of the government spending had no productive purpose whatsoever.
- roidubouloi
September 8, 2011 at 10:54pm
Capital gains can be timed. The "decision" of high earners to shift income between classes is not due to anything about their economic behavior but about the ability to game the tax system, because we make that possible by taxing different types of income at different rates, including zero for a lot of the income of the wealthy. If it were all taxed, they would have no chance to game the system. This is not some attribute of wealth. It is an attribute of a tax system thoroughly corrupted by the wealthy so that the true progressivity is almost zero. Now they are shooting for a fully regressive system.
- roidubouloi
September 8, 2011 at 10:57pm
Uhh, WWII was nothing but austerity, which lasted until bout 1947. Where do you get your info, Krugman? Stimulus? It lowered living standards in a common effort to redirect production to war aims, including the substantial population paid little and mobilized to march and drop bombs across Europe. It was not stimulus, though government spending undoubtedly dominated GDP.
- ds111
September 9, 2011 at 9:57am
Austerity? Not in the sense you guys mean it which is government austerity. Rather it was massive government spending that produced a 50% increase in GDP in a short time and this despite a massive diversion of labor power to the armed forces. According to you, this level of government spending is impossible without destroying the economy because government spending is a drain. But in the real world it produced a massive increase in output. Because you are obsessed with private consumption, you cannot even notice that output is output. What it is consumed for, whether for private pleasure or blowing holes in the ground in a faraway land, is irrelevant. Whether it has any "value" is relevant to living standards, but not to output. Of course war spending was stimulus. Because the meaning of "stimulus," a poor choice of words in my opinion because it confuses, IS government spending, public demand for public goods. That the subjective intention driving the spending was to fight a war is likewise quite irrelevant. The economy does say, "Hmmm, but what did he mean by buying all that stuff? Why did he do it?" It responds to the effective demand. This is perhaps the source of the supply-side confusion that claims that public spending cannot generate jobs. Nonsense. Demand is demand. Output is output. The millions of people who work for defense contractors, directly or indirectly, do not wonder for a moment whether they have real jobs and they spend their income just like everyone else. Whether what the Department of Defense buys is a valuable contribution to our lives is a completely different, and subjective, question.
- roidubouloi
September 9, 2011 at 11:15am
I am not obsessed with private consumption, as I've indicated umpteen times. The WWII spending was not wasted, as it ushered in a period of peace and economic growth, but at a great but necessary cost in living standards. And that is the point. The idea that WWII was a great example of Keynes ideas at work is pure folly. The living standard of all, except possibly the truly wealthy declined in order to produce, arms in that case, which allowed for solid growth years later. The government sector directly displaced the private sector, in the end for the better, but not without a lower immediate standard of living. If that is what you think we need now, I might agree. Dang..not enough time... Sad to see Chait leaving, he sparked some great discussions.
- ds111
September 9, 2011 at 1:12pm
Sorry, ds, but you completely miss the point, both of Keynes and here. The utility of what is produced is an entirely separate issue from the level of output and employment. Keynes did not think that digging holes would result in a gain in utility, and utility is entirely subjective. Egypt could build a pyramid or it could build everyone a two bedroom house. If Egyptians believed that having a pyramid assured them a wonderful afterlife and good harvests, then they might well have considered the pyramid of much greater value than the foregone houses. You might disagree for the same reason you say that the war effort lowered living standards because we couldn't produce guns and much butter. Objective reality is irrelevant. So is anyone's opinion about value. Americans undoubtedly thought that the war effort was more important to their well-being than private consumption. But even if they hadn't, it still would have been a massive increase in output due to government spending. O you doubt that the same effort could have given everyone a huge increase in welfare, and did after the conversion back to a civilian economy? You are confusing output and welfare because the libertarian dogma is that government spending generates no welfare and thus wastes productive resources. Even if that were true, it increases output and demand and generates additional private depend because people who work or govt spend their income just like anyone else. Keynes' point about hole. If stimulus, govt spending , closes the output gap, then private demand only has to grow little and we have full employment. We can then decide that we like the public goods or we can slow govt spending down as fast as private demand picks up the slack
- roidubouloi
September 9, 2011 at 1:49pm
Oh. Not surprisingly I have another comment. This involves us selfish baby boomer women. We had to work, most of us. Guess what kind of jobs we got. Even when we finally started getting better ones, guess what we got paid relative to men. UH HUH. Any idea how many of US live in poverty? Quite a few of us are widowed already, victims of divorces in favor of Trophy Wives; of course we have an excellent chance, as older women, of getting a good job. Uh HUH. Meanwhile, younger women dis feminists, who made it possible for them to have choices, better jobs, better pay. You want selfish? OMG.
- Sophia
September 9, 2011 at 4:22pm
Ds111, Didn't WWII increases in govt spending increase overall demand and lead to ending high unemployment in the national economy -- even if personal consumption on average declined? In order to turn over some of that govt-spurred output to war production, the formerly unemployed benefitted greatly by getting an opportunity for a paycheck instead of living on a shoestring. To smokescreen the lowering of the overall average of personal/private consumption to the lowering of the standard of living to all, seems deliberately dismissive of the increase in standard of living for the truly suffering unemployed who became employed. The dismissiveness of the importance of putting as many people to work as possible during periods of high unemployment dwarfs the importance of yacht-owners seeing their taxes go up so high that their standard of living is substantively lowered by only being able to trade up for a new yacht every two years instead of every year. Why does the plight of the unemployed have no resonance to your political worldview, Jacob Marley?
- mdoyle
September 10, 2011 at 12:48am
You know, to directly try to a speculate some answers to the questions, here's a few: 1) Two ideologies that adulate selfishness, ego-centrism and the individual imperative have been well-developed and are actively promoted, arguably like viruses, within certain population centers and at an early age, those ideologies being: (a) Ayn Rand / "objectivism" / egoism and its cousin (b) "paleo" free-market conservatism 2) Neo-conservatism, which may have had some good intentions when it cohered in the 1980s (recall "compassionate conservatism" of Jack Kemp or George Bush #1), but since the collapse of communism, insofar as economics is concerned, has lapsed into a pre-Hoover Gilded Age paleo variety that serves no mitigating purpose but only aggravates the problem 3) Of greatest importance to Democrats: the English common law, common-wealth, commonweal heritage of the left has (with rhetorical assistance of the right and collusion by the far-left) been almost entirely forgotten, expunged from our rhetoric, education and thoughts, and anything left of far-right is regularly labelled "socialist" and "communist" by the far-right and those from one end of the center to the other, pretty much accept it without answer, because having been divorced from a coherent non-leftist but public-centered ideology ourselves, we don't know how to answer it. There is much call for a return to civil society - but for those in the center and center-left who wish to see progress, I think we need to get back to Thomas Payne and even a left-side read on the Federalist Papers. There is too much gaming, too much "framing", ... its all tactical appeal to voters' hind-brains. What is needed (hey - give me an article here TNR!) - is a long-term project to reinvigorate a centrist ideology rooted in English and American history, not distracted or confused by 19th century socialism and 20th century shiboleths, that can remind Americans that back there with Paul Revere were the forebearers of BOTH today's Democrats and Republicans. Democrats have an AMERICAN heritage. We need to start wearing it on our sleeves. It may offend the sensibilities of some, but it is what it takes to "wedge" us from the left to regain both the sympathy of the center-right, if only long enough for them to listen to what we have to say. Right now they think we're socialists, radioactive and they'll follow Rush Limbaugh off a cliff yelling profanities at us while we scream at them to stop. Saving this enterprise means persuasion - the strategic, long-term kind. That means we need to re-assess our habits. What we're doing isn't working.
- dcwood10
September 10, 2011 at 11:08am
mdoyle, Great question. The price of reducing the plight of the unemployed was a decline in the living standards of the employed, perhaps including the wealthy. A good thing, but the reality. Remember too that the administration was terrified of a relapse after the war ended - Shiller mentions the Public Work Reserve, a permanent public jobs program to prevent a return to depression, but which never got off the ground. The Germans have recently effected a lowering of the average wage in order to maintain reasonably full employment. We could do the same today, but as Keynes indicated, wages tend to be sticky as those with jobs tend not to want to give up what they have. When our current bubble burst, private sector employment dropped quickly, a signal that wages were too high (bubble induced demand had declined); the public sector has a year or two lag, but is following quickly. In order to employ more labor, in a highly leveraged market economy, either the price of labor (and capital assets) need to decline. Keynes solution is to prevent this decline through public borrowing, essentially increasing public leverage to offset the decline in private leverage. Shiller's solution is to raise tax revenues (unspecified) if borrowing is deemed tapped out to fund a jobs program sufficiently to lower unemployment to acceptable levels. I am more in favor of Shiller's idea, but it is important to recognize that all solutions involve an effective cut in wages (increase in taxes) - again, a lower standard of living in order to get to full employment. I have concerns with the plan's implementation and long term impact, but it is a credible solution to a significant problem. The relatively strong economy from Clinton through Bush required ever increasing leverage, the only solution involves deleveraging to a sustainable level. Roi, my obsession is not with private demand, but with price.
- ds111
September 10, 2011 at 11:46am
Agree with some of the other comments- the President is attempting to do what you are asking for.
- bvanvlie
September 17, 2011 at 3:00pm