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Go Home Brooks Brothers Bolshevism

SEPTEMBER 14, 2011

Brooks Brothers Bolshevism

BY TIMOTHY NOAH

If you want to read a radical critique of twenty-first century American capitalism, skip the Daily Worker and go straight to Wall Street. A 2005 report by three Citigroup analysts coined the term “plutonomy” to describe an economy in which only the rich matter. In a follow-up report (cited in Don Peck’s excellent new book, Pinched), the analysts explained that the United States was “powered by the wealthy, who aggrandized larger chunks of the economy to themselves.”

Not to be outdone, Michael Cembalest, the chief investment officer of JPMorgan Chase, wrote in July of this year (in a clients-only newsletter obtained by Washington Post columnist Harold Meyerson) that “profit margins have reached levels not seen in decades,” and “reductions in wages and benefits explain the majority of the net improvement.” (Cembalest printed the latter quote in boldfaced lettering.) “US labor compensation,” he explained, “is now at a 50-year low relative to both company sales and US GDP.”

Cembalest and the Citigroup analysts see the American postindustrial economy’s abandonment of fair play as an interesting fact to consider in formulating future investment strategies, not an occasion to march down Broad Street waving some Fortune 500 chairman’s bald head atop a bloody pike. By contrast, the Wall Street maverick traders profiled in Michael Lewis’s razor-sharp 2010 narrative The Big Short see it as both. “The upper classes of this country raped this country” is one of the more polite things that Morgan Stanley money manager Steve Eisman has to say on the eve of the 2008 sub-prime fiasco. A Spartacus Youth clubber might judge Eisman’s rhetoric a trifle overwrought. A few pages later, Eisman concedes that, by shorting the sub-prime market, he helped create the liquidity that kept it going: “We fed the monster until it blew up.”

Then there’s Dan Alpert. As managing partner of the New York investment bank Westwood Capital, Alpert hasn’t lost interest in making money. But, when he describes his view of how joblessness and stagnating middle-income wages relate to the debt bubble of the aughts—as he’s been doing more and more in the financial press and on the Washington policy-wonk circuit—he sounds like Robespierre. (He’s actually more of a Hubert Humphrey Democrat. Alpert and I were grade-school friends when Humphrey lost his presidential bid in 1968; we fell out of touch soon after. This past winter, our mutual interest in income inequality, about which I’m writing a book, brought us together.)

Once upon a time, Alpert explains, American capitalists paid American laborers with something called a “salary.” Henry Ford famously boosted his workers’ pay to $5 a day so they could buy the Model Ts they were assembling. The better part of a century passed, and, by the early aughts, globalization had created a world oversupply of free-market labor—a hiring hall now housing about 2.6 billion recruits from emerging nations, together with roughly 550 million in the developed world. It no longer made financial sense to pay American workers high wages when you could pay Chinese workers low wages to do the same work. On the other hand, if American workers lost their spending power, who would keep the U.S. economy afloat?

The rise of cheap credit provided the answer. American labor effectively got paid in a different currency: debt. Instead of Model Ts, the latter-day working class bought overpriced houses and all sorts of other stuff it couldn’t afford. The beauty for the capitalists was that, when laborers got paid with debt, they had to pay it back with interest. Alpert calls it “middle-class serfdom.”

Alpert doesn’t believe there was a capitalist conspiracy; his point is that had there been a conspiracy, the outcome wouldn’t look much different. During the past half-century, Alpert explains, there were two large debt bubbles. The first one, during the late ’80s, saw real median incomes increase along with debt. Not a lot (inflation-adjusted median income hasn’t seen much growth since the early ’70s), but enough to ease the pain when the bubble burst in 1987. When plotted in a graph, the ’80s debt bubble looks like a big hill (debt) on top of a little hill (income). The second bubble, during the aughts, was a different story altogether. It occurred while real incomes went down. The aughts’ debt bubble looks like a big hill on top of a big valley. This time, there’s nothing to ease the pain.

Alpert isn’t the first person to suggest that our current economic troubles resulted from people buying with debt what they could no longer buy with wages; Raghuram G. Rajan has made a similar case in this magazine (see “Let Them Eat Credit,” August 27, 2010) and in his 2010 book Fault Lines. But Rajan is an economist. Alpert is a banker. Bankers buy, sell, and securitize debt. Banks are essentially debt stores, right?

No, Alpert says. You might call a commercial bank a debt store, he explained in an e-mail, or a foreign bank, or “the post-Glass-Steagall mega-monstrosities.” But an investment bank is (or at least is supposed to be) more of a capitalinvestment store. Alpert has, he concedes, created his share of “products” over his career, including the first pooled commercial-mortgage-backed securities to be graded by any of the big three ratings agencies. His firm got out of mortgage-backed securities “when the business became both irresponsible and commoditized. There was no value for us to add, because we don’t have a checkbook of other people’s money to fritter away.” They don’t have such a checkbook because Alpert’s firm is an old-fashioned partnership, not a publicly held company.

Why is Alpert so vocal? He says his clients benefit when “we channel our firm’s expertise, and America’s ingenuity in general, toward obtaining solutions to the current economic predicament.” A similar motive likely drove Warren Buffett to point out recently that, far from simplification, what the income tax really needs is the complication of two new tax brackets above $1 million and $10 million to keep up with growing income concentration at the top. “We now have a Gini index similar to the Philippines and Mexico,” a Proctor & Gamble vice president told The Wall Street Journal earlier this month, referring to a measure of income distribution. Since when do marketing executives keep track of the Gini index? It seems that no one making an honest effort to diagnose the economy can avoid the topic of growing economic inequality. The rhetoric sounds alarmist because the situation is a genuine cause for alarm. Maybe that’s why even Democratic politicians have almost nothing to say about  it.

Timothy Noah is a senior editor at The New Republic. This article appeared in the October 6, 2011 issue of the magazine.

SHARE YOUR THOUGHTS

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113 comments

A great first TRB. As Lewis says in the Big Short -- financiers and policy-makers came along and saw securitized financial products as a solution to income inequality. Wages are stagnant, you say? Then lets lower lending standards so people can afford homes. The Democratic party will suffer -- and rightfully so -- until it disassociates itself with this kind of thinking and the sort of people, like Bob Rubin and Jim Johnson, who propagate it.

- josh_y

September 15, 2011 at 12:17am

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Ah, the two large debt bubbles. What happened in the 1980s and 2000s? Republican presidents worked to skew the income distribution towards the top by shifting the tax incidence down the scale. Middle class gains couldn't keep up, which meant people had to go into debt to maintain standards of living. And yet more money accrued in the hands of the rich. A rational designer would tax money where it could be found. If wealth accumulates at the top and rich people respond that we need to "broaden the base", they are implicitly trying to evade rational tax policy by shifting the tax bill to people who earn less and haven't seen a raise in years. This is not "spread the wealth" so much as "hoard the wealth". It would be far better if rich people realized they have a long-term self-interest in the middle class and poor doing well. For the worse everyone else does, the more embittered they get--the wealthy become much less secure in their wealth in the end from increased violence and economic disruption.

- chaitless

September 15, 2011 at 12:17am

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Ah, the two large debt bubbles. What happened in the 1980s and 2000s? Republican presidents worked to skew the income distribution towards the top by shifting the tax incidence down the scale. Middle class gains couldn't keep up, which meant people had to go into debt to maintain standards of living. And yet more money accrued in the hands of the rich. A rational designer would tax money where it could be found. If wealth accumulates at the top and rich people respond that we need to "broaden the base", they are implicitly trying to evade rational tax policy by shifting the tax bill to people who earn less and haven't seen a raise in years. This is not "spread the wealth" so much as "hoard the wealth". It would be far better if rich people realized they have a long-term self-interest in the middle class and poor doing well. For the worse everyone else does, the more embittered they get--the wealthy become much less secure in their wealth in the end from increased violence and economic disruption.

- chaitless

September 15, 2011 at 12:17am

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"Maybe that’s why even Democratic politicians have almost nothing to say about it." Or maybe it's because Democratic politicians are just as fully implicated in the plutocracy as are Republicans.

- AaronW

September 15, 2011 at 12:56am

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Interesting tidbit about the Gini index. Americans who don't get out of the USA very often should know that the inequality shows. I'm an American who lives in Australia. I have also lived in Namibia and traveled in Indonesia, Fiji and Guatemala. When I visit home from Oz I'm struck by how much more the US reminds me of one of those semi-developed countries than another part of Australia. And Australia's per capita GDP is smaller than the State's, but you sure as hell wouldn't know it walking down the street.

- AaronW

September 15, 2011 at 1:03am

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chaitless is right. The blithely arrogant bankers and CEO's, while sipping cognac in their cigar bars, are unaware of the consequences of blowing off the middle class. Someday, maybe not soon, but someday, they'll find out. They would do well to read some history, instead of lounging around, smirking with self-satisfaction.

- magboy47.

September 15, 2011 at 1:38am

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Welcome to the party, Mr. Noah. I have not the slightest doubt (as anyone who has been noting what I have been writing here for a least a couple of years) that the major illness of our economy is the increasing skewness of the income distribution, a problem that should be mitigated by the income tax system. Too much money in the hands of the investor class and not enough in the hands of the consuemr class starves the economy of both demand and adequate investment opportunities. A debt bubble is the inevitable result as the economy lends back to consumers the income they no longer have so that demand does not crash. But this is in the end unsustainable. I am also sure that globalization has far more to do with this than mainstream economists recognize. We are splitting up into a First World nation of high earners who are able to garner a large chink of global income and a Third World nation of people who are forced to compete head to head with foreign labor that is paid a fraction of US rates. Is there any reason to believe that the US could not in principle consist of two such "nations" within the same borders? There is plenty of precedent around the world. Our national policies, tax and trade, should be designed to mitigate both the impacts of globalization and the income inequality that results. Instead, since Reagan, supply-side nuttery and free-market extremism, abetted by free-trade fundamentalism on the center left, has led to just the opposite. This pernicious pseudo-economic theory bears exactly the same relation to reality as the theory that the earth is flat and carried through the heavens on the back of a giant turtle. I had the occasion a couple of years ago to sit next to a US trade representative at a Bar Mitzvah in DC. I couldn't resist starting to talk about trade policy and suggesting that we needed to mandate current trade balance on a basis that does not discriminate amongst countries or goods -- a cap and trade system for import permits that balances it with exports. The response? "But that would be managed trade." To which a replied, "So?" Even then concept of using our own control over our borders to prevent other countries from taking advantage of us is anathema to the Washington orthodoxy. Let's here from our resident libertarian/supply siders, ds111 and seattleng. Beginning to get the idea, boys?

- roidubouloi

September 15, 2011 at 2:11am

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Is there any reason to believe that the US could not in principle consist of two such "nations" within the same borders? Good question! This is why it would be helpful for the BEA, Census, and NBER to disaggregate GDP data into statistics for the top 5% (or 2%, or 0.1%) and everyone else. I am almost certain that if they did that, they would have seen much earlier that the "everyone else" statistic is still consistent with recession--yesterday's record poverty numbers, anyone?!--and the only reason overall GDP has recovered is because Wall Street is back and rich investors have been made whole. Rich people are responsible for a huge amount of the GDP, but everyone else is responsible for consumption and, ultimately, the rate of GDP growth. The Fed and other Washington institutions would do well to act for the median consumer and assume that everything else will work out instead of acting for the mean consumer and feeding the inequality that exacerbates the demand shortfall. I'm not sure you can do wrong if you work to shore up your fundamental economic units--the Clinton boom is a good example of this. Unfortunately, Republicans' cries for "small business" are just a well-worn Luntzian technique that mask (and signal) they are fighting for the multinationals that dominate the Chamber of Commerce. Note that the comment from the trade rep almost proves my point. Corporations can benefit maximally if they take advantage of free borders. As long as that ideology is standard within the investor class, it doesn't matter that there are plenty of non-tariff barriers that pervert the free market and, for example, skew the balance of trade in China's favour. It's not like the WTO is going to do much about it.

- chaitless

September 15, 2011 at 8:20am

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All very well put chaitless. (Are you going to have to change your screen name now?) I gathered from something you wrote, I remember not when, that you are pretty young (under 30 is how I count pretty young). Can I ask about what you do and what you have studied? You seem to me to have a very good grasp of macroeconomics.

- roidubouloi

September 15, 2011 at 8:52am

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chaitless/magboy47, at what point are these negative consequences from marginalizing the middle-class supposed to materialize? The poor and middle-class haven't made any real income gains in over 30 years. 46.2 million Americans were living below the poverty line last year. Unemployment still sits at 9.1%. So where is the marker at which point enough will be enough?! My guess is that it doesn't exist. Not in the sense that your expecting; which is to say that it will not result in actual physical security consequences for the rich. Too many people worship the rich to want to alter the system. Our society inculcates from an early age the idea that wealth is a byproduct of hard work and is earned. It's a status of virtue. This propaganda is vast yet concentrated, and extremely effective. And of course it's further cloaked in patriotism. No, I'm afraid the the revolution, peaceful or otherwise, that people are waiting for isn't coming. Not in a groundswell movement anyways. The best you can hope for is a sustained chipping away of the wall that has been erected to maintain the privileged classes status.

- andrewk

September 15, 2011 at 9:34am

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As far back as 1985, using data through 1983 only, one was able to see that income inequality in the U.S. was increasing, using the Atkinson, Gini and Paglin-Gini measures. (I wrote my college senior thesis on the topic.) What astonishes me is that we are only now, more than twenty-five years later, acknowledging that trend. I applaud your efforts to do this topic justice.

- afortunato

September 15, 2011 at 9:45am

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I disagree, andrew. Takes the right leader, someone whom the wealthy will surely brand as a demagogue but who garners the support of working people anyway. Probably has to be "a traitor to his class" such as Roosevelt.

- roidubouloi

September 15, 2011 at 9:46am

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But won't those hedge funds and investment banks eventually collapse? After all, they aren't investing in businesses for the long term, but engaging in short-term speculation, mostly in financial instruments (primarily bonds and currencies, not equities); I'm not referring to firms that limit their trading to arbitrage, which, though it sounds sinister, actually provides a very useful function by correcting market imperfections (attributable mainly to "imperfections" in the flow of information). As ownership of capital becomes more concentrated, they will be trading with fewer and fewer firms. And for every winner in a trade, there must be a loser (unless they can defy the laws of physics, and economics). They are building a house of cards that must, necessarily, collapse (which may well have occurred in 2008 if not for the intervention of government).

- rayward

September 15, 2011 at 9:53am

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rayward, it won't collapse if the schmucks on the bottom keep supporting the system with their "American Dream" fantasies. America could well become a third world country, like Saudi Arabia but with Christianity instead of Islam.

- GSpinks

September 15, 2011 at 10:28am

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roidubouioi, certainly whoever took up such a position against the privileged class would suffer their castigation. But you're presuming that a massive-movement leader is waiting in the wings to step forward at the right time. I'm just not positive that our current society is going to produce anyone like that. And so my question remains valid: when, if not now, will society at large say that enough is enough? What is the threshold that people won't be pushed beyond, if we haven't already reached it? And when is the leader that you think is capable of producing a sea change in attitudes toward the rich actually going to emerge? The 'leader dilemma' and simple solution that you've put forward seems belied by an observance of all history's myth stories. In all the myths, the leader/champion/hero always emerges when society needs him the most. So what's the hold up?

- andrewk

September 15, 2011 at 10:38am

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chaitless: Rich people are responsible for a huge amount of the GDP, but everyone else is responsible for consumption and, ultimately, the rate of GDP growth The main problem with this is nowadays consumption can be anywhere on earth. GM sold more cars in China than the US last year and if you work for GM in China life is pretty sweet, especially at the top. I know Americans who own factories in China making goods for the Chinese market, they don't even bother to export (by which I mean they are too small to go through that laborious process necessary to export), why would they remotely care how their fellow Americans make provided our government offers them security and low taxes? And if taxes go up most will just park their profits overseas and avoid taxes altogether, they can buy a condo in the Cayman islands or a resort home in Huatulco. Things are going to get shittier and shittier for the poor and middle class in America (but hey, they own refrigerators and have beds so their life must be wonderful, right?) And with Republicans now screaming how the poor and middle class don't pay enough taxes I forsee the debt being foisted off on them, at which point the poor and middle class will blame the Democrats and vote Republican because the Democrats didn't stand up to the Republicans enough so must be taught a lesson.

- blackton

September 15, 2011 at 10:50am

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Chaitless writes: "What happened in the 1980s and 2000s? Republican presidents worked to skew the income distribution towards the top by shifting the tax incidence down the scale. Middle class gains couldn't keep up, which meant people had to go into debt to maintain standards of living. And yet more money accrued in the hands of the rich." So many mistakes in this paragraph. 1. The income distribution simply mirrors the productivity distribution, which in turn mirrors the skills distribution. If you think a high school drop out will keep up with a MIT graduate that is starting the next FaceBook in San Jose, then you are sadly mistaken. Our rate of innovation is higher than ever today, and our rate of high school drops outs is greater than ever. 2. The gains the wealthy make have ALWAYS outpaced the gains the poor and middle class make. It's not an anomaly what you see today. It is akin to noting a faster runner gets there sooner. No kidding. That will always be true. And as we established in the last thread with Roid, it has been happening since at least 1913. At not time have the rich NOT seen their wealthy grow at a healthy clip. Ever. 3. More millionaires were minted under Clinton that any other time in history. You exempted the 1990's above. Is that because you believe there was some fairness that was injected into the system? 4. The gap between the rich and poor grew FASTER under Clinton than any other time in history. 5. The middle class had more post-tax income, in constant dollars, under Bush than Clinton, Bush Sr., Reagan, etc. Your assertion that people had to go into debt to maintain a standard of living is false. They had more income than ever.

- seattleeng

September 15, 2011 at 10:52am

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The 1990s were a while ago. The fact that gains were distributed almost uniformly to people of all incomes may have escaped seattleeng. Fine. Maybe he has a short memory. But "Your assertion that people had to go into debt to maintain a standard of living is false." That's a King Size Double Whopper with Cheese. Here seattle inherently denies that home prices vastly outstripped incomes, that health price inflation did not encroach on income growth, and that out of control higher education costs had no effect on consumer debt. I'm assuming he missed the reports that student loan debt is astronomical today, that credit card debt and underwater mortgages are perhaps the major impediment to a recovery that lowers the unemployment rate, and various other tidbits that form the bulk of our economic news this week. Truly I tell you, as long as poorer people don't feel they are getting none of the benefits from working and watching the world's richest nation get richer, they'll be fine. The sins of today will be exacted upon the next generation in terms of constrained growth and the societal ills visited upon a nation by families broken by economic hardship. Generally, what this means is akin to what other people pointed out: the US won't be as reliable a place to park your money and watch the dividends roll in if its economic fundamentals are unsound. And this is all before we even address the debt figures. This is not in the interest of rich people, and although they can--and will--shift investments to other countries, that process can't continue to come without incident, as people suggest. I mean, Republicans are attempting to go after "my Social Security" and "my Medicare" with the Ryan plan. This isn't all happening in a vacuum.

- chaitless

September 15, 2011 at 12:17pm

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wow seattle, you just don't get it at all. The issue is not income disparity alone, if the economic pie is growing (in real terms based on productivity increases and not population growth) and everyones total percentage is the same, I can live with that (provided we are also responsible with regards to the environment) but this is not the case at all. We have 14 trillion in debt, and what has it bought us? For the middle class, not a heck of a lot. For the rich, a whole hell of a lot. The question you ignore is how much does the average worker receive in compensation for his increased productivity gains? Under Clinton he did, under Bush he GOT squat.

- blackton

September 15, 2011 at 12:28pm

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The Republicans have done a great job of directed the general anxiety of the middle class away from what should be their real source of concern as discussed above. The right has seized the populist cause. There is no longer a left to speak of. All this bodes I'll for the future of the republic.

- paskunac

September 15, 2011 at 12:42pm

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roi is right. And he and chaitless remember most of their Macroeconomics 101 (abeit an occasional review -or a read of Krugman or DeLong's blogs wouldn't hurt). Debating Seattle is worse than debating a table... at least the table doesn't spout nonsense. Why bother? Incidently, t he rich are NOT resposible for most GNP or job growth--- but rather middle to upper class small business owners. Who typically support policies that totally screw them.

- drofnats1

September 15, 2011 at 12:47pm

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Chaitless, this is very simple. Look at CBO reported post-tax incomes in constant dollars for the middle quintile: 1980: $40,100 1990: $42,400 2000: $47,500 2005: $50,200 Now, debt is not part of your income. So, if consumers are taking on more debt, it's not because they are making less money. And it's not because everything is more expensive. It's because they are CHOOSING to have more "stuff" than their parents. Bigger houses, more cars. It is irrefutable: The middle class today (prior to 2008, let's say), earns more than ever before in constant dollars. Yes, their debt might be higher, but that's a decision people have to make for themselves. Our parents opted NOT to take on that debt and they lived is lesser houses, and owned fewer cars. This generation has opted to immerse themselves in debt. Surely you cannot refute the CBO data that says the middle class is earning more than ever. But you may try.

- seattleeng

September 15, 2011 at 12:47pm

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Blackton writes: ". The issue is not income disparity alone, if the economic pie is growing (in real terms based on productivity increases and not population growth) and everyones total percentage is the same, I can live with that (provided we are also responsible with regards to the environment) but this is not the case at all. " I am curious to hear your thoughts on this: Assume for a decade the country makes $10T of stuff per year, and we all get a salary that everyone agrees is fair. There is no growth in income. It's just $10T year after year. And then Google arrives on year 11, and they create a business that generates $1T in revenue. So the country then creates $11T worth of stuff. Should the entire country participate in that 10% growth? In other words, do you expect a trash collector to get a 10% raise?

- seattleeng

September 15, 2011 at 12:51pm

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andrewk, you make some good points, but you never know what will happen in today's super-connected world. Look at the Middle East this year. Dictators fell. And it started with young people on social media. One of these days some young, middle-class, college person in America may tweet his or her their anxiety and rage about not having any prospect of a job, and suddenly there is a Flash Mob for Jobs. And if the police get involved in the event, the news will be around the world in minutes. Remember, one of the main concerns of the young people in the Middle East was jobs. The movement in America will probably start on campus. That's where middle-class kids in the Sixties initiated the anti-war movement, out of fear of having to go into combat. Not having a job can also affect your physical survival. Even Wall Street is laying off people now, so the bankers there can make even greater profits. Corporate America is still making record profits, and they now have $2.5 trillion in the bank. When that becomes common knowledge among unemployed young people with iPhones, look for things to change, at least to the point where eventually the upper 2% are taxed more, so that the government can create public-sector jobs that corporate America is too cowardly to even consider. You never know when something will happen, but when the physical survival of millions is at stake, eventually people will stand up. History proves that.

- magboy47.

September 15, 2011 at 12:56pm

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This article would be better if you could distinguish normative from positive statements. JP Morgan, etc., are making positive statements. Income is getting more unequal, plan for that in your investment plans. Then there is a normative conclusion. This is bad for social welfare, or bad for US democracy. You should not be surprised that investment bankers recognize the positive point -- they have to do this to do their job. Even if they don't like it they need to plan around it. The interesting point is that the reason the inequality grows unboundedly (it seems) is that most Americans no nothing about it, so it has little effect on voting patterns (that is the secret of Republicanism I guess). If people knew what was going on you would see much more success for more radical redistribution, I suppose. Why that does not occur is also a positive question, but for political scientists.

- bwickes

September 15, 2011 at 1:00pm

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seattle, you are making no sense again. We all agree that real economic growth is good and no one is out to steal Sergei Brin's money away. You again ignored the issue, which is justly recompensing workers according to their own productivity gains. If a google software engineer came up with a great idea, or busted his ass and helped make the company a ton of money yet was not rewarded at all how long do you think Google will remain at the top? "Assume for a decade the country makes $10T of stuff per year, and we all get a salary that everyone agrees is fair. There is no growth in income. It's just $10T year after year." This is one of the stupidest assumptions possible. Why would I assume something so idiotic for? Have you no concept of progress man? Are you not an American? As to the middle class, you also ignore that more women work and work longer than previous generations (and have to have less children as a result) and Americans themselves have to work longer. The point again and again is that incomes are not keeping up with output from those very same workers. Why are you defending Banana republicans for?

- blackton

September 15, 2011 at 1:10pm

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Banks of various types are nothing but utilities who have escaped any practical regulation. All the bullshit financial "products" they implemented are simply designed to take money from the pockets of people stupid enough to use their useless services for fees, that includes businesses. I prefer credit unions. Banks should be made utilities and run like them, heavily regulated. The SEC is a poor excuse for a keeper of the rules - and totally clueless--as well as well understaffed. I remember when a banker was a position of trust in the community. Now one is simply a thief and liar, as bankster. The war against workers is not new at all, only the rich have thrown so much money at wage suppression and arbitrage that they have in fact driven down wages for services and product - and they really do not give one happy damn about the people adversely impacted by their actions, which they consider edicts from some god.

- wafranklin

September 15, 2011 at 1:31pm

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wafranklin, good post. I, too, remember when bankers were trusted members of the community and when they kept a home loan on site, instead of bundling it and passing it along to someone in Iceland for a fat fee. A big part of the problem are business schools in America. They almost encourage young people to make money as fast as they can stuff it into their bulging brief cases. They don't warn them that such behavior is that of a sociopath. Sub-prime mortgage companies drove their employees to make record profits every month, instead of every quarter, with no thought of future consequences. And then Wall Street bankers bribed Standard & Poor's, Moody's, and Fitch to give the poisonous sub-prime bundles a AAA rating, so suckers around the world would buy them. And to top it off, G.W. Bush personally went to some SEC "regulators" and suggested that they take jobs with the banks they were supposed to be regulating, because "regulation is bad for business." Actually, regulation is bad for criminals. If only we had more of it.

- magboy47.

September 15, 2011 at 2:09pm

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Blackton writes: "This is one of the stupidest assumptions possible. Why would I assume something so idiotic for? " It's called a hypothetical. It's how people with disparate viewpoints understand the other person's boundaries. Ignore the idiocy and answer it based on how you feel. I present it again for your consideration: Assume for a decade the country makes $10T of stuff per year, and we all get a salary that everyone agrees is fair. There is no growth in income. It's just $10T year after year. And then Google arrives on year 11, and they create a business that generates $1T in revenue. So the country then creates $11T worth of stuff. Should the entire country participate in that 10% growth? In other words, do you expect a trash collector to get a 10% raise? If not, how much should he get? The premise and question are very straightforward. Awaiting your answer.

- seattleeng

September 15, 2011 at 2:11pm

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i'll accept the challenge seattle. assuming none of that gain was rented and nothing that previous taxpayers paid for (e.g., infrastructure), then the trash collector doesn't deserve any raise, it should all go to google workers and shareholders. however, do you actually think none of that gain was rented? do you think none of the google's real contribution could be attributed to the presence of a 20th century infrastructure and educated workforce? I doubt you think that. Let's take another extreme case. Take an investment bank where say, 75% of the real earnings is rented and another 20% is attributable to infrastructure, leaving only 5% in real gains. should bankers take home all that wealth?

- mmathog

September 15, 2011 at 2:46pm

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if we could take the rich of welfare and put an end to most crony capitalism, I too would favor much lower taxes. taxes are a relatively inefficient way to collect the rents back (they're too high for lebron james, too low for wall street bankers). until that happens though, we'll just have to raise taxes on the rich, if they're renting, i'm taxing.

- mmathog

September 15, 2011 at 2:49pm

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You are the right track ... it would be great if you could further discuss the relationship of public and private debt to our trade deficit. In the end we are not going to solve our debt problems without an industrial policy which asserts what we are going to become good at and sell on the international market to ensure we do not have such as deficit. And yes, we need to tax the bejesus out of the overwhelmingly powerful, non-job creating, destructive top epsilon percent of the population before they destroy our democracy.

- keepin_on

September 15, 2011 at 3:12pm

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mmathog: "should bankers take home all that wealth?" Of course not. But in the contrived case of Google, I think you'd agree the following was fair: Google shareholders get an overwhelming majority Regular citizens not at all associated with google (eg trash hauler in Topeka) get a very small piece because they are part of the country that helped build the infrastructure that allowed google to flourish. Do you agree?

- seattleeng

September 15, 2011 at 3:35pm

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Sorry, missed the most important group: Google shareholders get an overwhelming majority Google employees get a decent-sized chunk Regular citizens not at all associated with google (eg trash hauler in Topeka) get a very small piece, but they still get a piece because they are part of the country that helped build the infrastructure that allowed google to flourish. Do you agree?

- seattleeng

September 15, 2011 at 3:37pm

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yeah I agree. but you seem to think that's what's happened, and I don't think it has. the poor have earned less. the middle class have earned 7% more. the rich have earned like, 30% more. your premise is that the rich are the ones that have executed those productivity gains, a few of the rich are (brin, lebron) but a lot of the rich have just rented/corrupted into the gains, not "earned" them in the same sense. if you accept that premise (which I don't think you do), what is to be done?

- mmathog

September 15, 2011 at 3:43pm

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It is indeed what has happened. All figures below are constant dollars (1980 to 2005) Since 1980, the second quintile has seen their income from from 28.0K to 33.7K, or 1.204 times. The middle quintile has seen their income grow from $40.1K to $50.2K, or 1.25 times The upper middle quintile has their income grow from 52.5 to 70.3, or 1.34 times The top quintile has seen their income grow from 92.9 to 172.2, or 1.85 times. And GDP has grown from about $6T to 12.5T, or about 2.08 times in this time frame. Now, what is this data telling us? It's telling us that a lot of wealth has been created since 1980. In fact, there is roughly 2X more today than there was back then. But it's also telling you that of all that wealth, the top 20% took 1.85X while the middle 20% took 1.25X more. In other words, the top 20% took 50% more than the middle class. Not too unreasonable, frankly, when you consider the top 20% include our most educated and motivated people. Do you disagree?

- seattleeng

September 15, 2011 at 4:08pm

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seattle likes to look at numbers in isolation in the hopes that they prove a point. "1980: $40,100 1990: $42,400 2000: $47,500 2005: $50,200 ...It is irrefutable: The middle class today (prior to 2008, let's say), earns more than ever before in constant dollars." According to the CBO numbers above we can see the middle class family saw a "rise" of $230 per year from 1980 to 1990. From 1990 to 2000, that same family saw a "rise" of $510 per year. From 2000 to 2005 the same family saw a "rise" of $540 per year. But let's take 2000-2005 for slice. The rate of inflation during that period was 12.67%. The middle class income "increase" that Seattle boasts about was just about 5% over the same 5 years. As we can see, those fat cat middle classers enjoying their Swisher Sweets and snifter of cooking Sherry needed to triple their rate of income increases to get ahead of the rate of inflation. I wonder in what world Seattle lives in which where the rate of inflation outpacing the modest increase in income reflects a boon for the middle class. But wait! It gets better. From 1990 to 2000 the rate of inflation over the decade was a whopping 32.50%. That middle class family saw their rate of income over the same period at just above 10%. While 10% income increase sounds great at first. Over a decade that's basically 1% every year. Woo-fuckin'-hoo! But wait....it's even better in the decade of Ray-gun. We saw a inflation rate from 1980 to 1990 of 63.75%! While my income during that same period rose at the astonishing rate of 5% over the decade. So when I go buy a replacement for my Ray-gun era color TV that I paid $200 for in 1980, I'm now paying $327.50 for the same TV in 1990. So it costs me $127.50 more. But factoring in the fact that I got a huge raise of $230 that year in 1990, I guess I've still got $102 left over to "invest" in things like food or other luxury goods for the remainder of the year. When we look at it more closely we realize that Seattle's skewing of how "good" the middle class have had it for the last 30 years falls flat and is not just disingenuous but borders on insulting.

- singlspeed

September 15, 2011 at 4:14pm

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Single, on principle I hate to do anything to help Seattle out, and I have no idea where he gets his numbers and whether they're accurate, but his figures are supposedly constant dollars which means they're already adjusted for inflation.

- AaronW

September 15, 2011 at 4:29pm

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Maybe Tim Noah would like to step in and address some of our libertarian friend's points since there seems to be some disagreement about the basic facts regarding income growth.

- AaronW

September 15, 2011 at 4:31pm

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You really are a wingnut, seattle, who will repeat endlessly the same false claims despite all evidence to the contrary. What was established on the last thread is that, contrary to your bullshit, the income share of the top 1% and the top 10% declined rapidly at the start of WWII, stabilized at a much lower level in about 1943 and remained there until 1980. Then the income share of the top tier began to rise again and has now risen to its highest level since the 1920s. There is absolutely no empirical basis for the claim that income is distributed according to productivity other than the tautological claim that income establishes productivity. This is a rightwing economic myth, a political claim meant to rationalize and justify whatever income distribution the market delivers. In fact, any distribution between capital and labor is compatible with productivity given a technology. Outsize income shares for particular labor segments are economic rents. andrew, I made no claim that a leader who will galvanize middle class and working class discontent and point it in the right direction is here now, waiting in the wings, or will materialize at any given time. My only claim is that the declining income share of the middle and working classes provides the opportunity when the right person shows up. They always do sooner or later. From which point in the political spectrum is anyone's guess.

- roidubouloi

September 15, 2011 at 4:36pm

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seattle either makes his stuff up or copies off of right-wingnut websites. Every single time I have investigated one of his factual claims -- an unfortunately time consuming process -- it has proven to be false.

- roidubouloi

September 15, 2011 at 4:38pm

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Yes, correct, they are already adjusted for inflation. The data comes from the CBO 1979 to 2005 data set, table 1C, all households, after taxes. Singlespeed et al, assume for a moment the data I am showing you is accurate. Does it seem unfair? Do you really believe that the top 20% should see the exact same income growth as the middle 20% Of course you don't. Every day in your life you value certain kinds of work more highly than others. You think a doctor that can do a bypass operation is more valuable than someone that picks up trash. You think a good waiter deserves a better tip than a poor waiter. You think a craftsman that makes you a dining room table from walnut deserves a better wage than a guy that sells you a pre-made plastic table. What we see the in the numbers above reflects just that: our smartest, most skilled and most motivated grab a bigger share each year than those that are not as smart and not as motivated. Why is that a surprise to anyone? Is there anything wrong about this? Does anyone here believe that someone that has no real skills and doesn't want to work very much shoudl get as much of a raise as a guy who has a masters and works 60 hours a week? I hate to tell you, but they are not equally valuable to society. And they will not see equal raises each year. In any society.

- seattleeng

September 15, 2011 at 4:43pm

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And, needless to say, the period of our highest economic growth coincided with the decline and stabilization of upper income share at an historically low level. The increase in high end share has coincided with a decline in growth. So, not only is the lower 90% getting a smaller share, but the rate of growth is down. Male high school graduates earn less than their fathers. Why? Because industrial jobs have either disappeared or the wages have fallen due to competition from abroad. As long as there is no limit on the amount of stuff the high earners can import rather than buy domestically, this will continue to be the case.

- roidubouloi

September 15, 2011 at 4:45pm

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Roid writes: "seattle either makes his stuff up or copies off of right-wingnut websites. Every single time I have investigated one of his factual claims -- an unfortunately time consuming process -- it has proven to be false." Lessee, in our last few debates I've cited data from the CBO and various WSJ and NYT authors. Hardly culled from right-wing websites. Take a stab. I know you have the CBO data. Tell me where the numbers above are wrong? Or will it be like last time, where you take a few swings at strawmen, claim everything is wrong, and then disappear into the night? The following you were unable to refute last time, care to try again? 1) The top 1% of enjoyed increasing gains for as long as we've been tracking this stuff (1913 or so) 2) Never has there been a point in time where the top 1% have suffered and the middle classes have thrived. The gains of the middle class (and top 10%, 5%, etc) largely track the gains of the top 1%. Ergo, take care of the top 1%, and the rest will follow. Clinton and Reagan both showed this. 3) GSE's and the the government carried a majority of the subprime loans 4) GSE's substantially relaxed lending requirements on those that were poor credit risks and unable to pay back the loans if the slightest hiccup occured in the market

- seattleeng

September 15, 2011 at 4:55pm

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Good God. You guys win the BHO never-learn prize. You keep engaging Seattle like BHO keeps engaging the Repubs looking for a rationale debate in your case and a rational compromise in BHO's. You all fit Einstein's definition of insanity: Keep running the same experiment in the hope that you'll get a different answer next time. You guys are just wasting your time by so doing (and a little of mine in reading this insanity) -- BHO is wasting the country.

- drofnats1

September 15, 2011 at 4:56pm

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Roid writes: "Male high school graduates earn less than their fathers. Why?" This is very easy: If you have the same skills your dad has, your are screwed. If you want to earn more than your dad, then you need to have dramatically more skills than your father. But that has been true forever too. In the late 1800's, if you couldn't read, you could still do OK if you were willing to do back breaking labor (which was widely needed). Today if you can't read, you are screwed beyond your wildest dreams. There is nothing sinister going on here. The bigger question is why has a child in the most advanced society ever in history, with hundreds of thousands being spent by his governemtn to give him a K-12 education....why is that child no better equipped than his father?

- seattleeng

September 15, 2011 at 5:04pm

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the data stops in 2005?

- mmathog

September 15, 2011 at 5:11pm

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Seattle... I'm not saying that someone who performs heart surgery doesn't deserve more than a trash collector. But you seem to imply that everyone who sees their income rise by 20 or 50% rate is deserving based on the value they bring to the economy, i.e. their hard work and intelligence. Where that it were always true. I don't think that a medical sales person making $300k a year is bringing greater value to society than a precision machinist making $80K a year. The pay value might imply that but that really only reflects a skewed perception of "value" of work. You can't honestly tell me that every person in the top 20% is more deserving. And there are certain types of work I value more than others. Do I think a steelworker brings more value to the economy than a super model? Do you think the master woodworker making furniture in walnut brings more value than the commodities broker? I would but then I consider the craftsmanship, skill and intelligence required of certain trades to be of greater importance than the values society has given make-believe careers that exist in our economy now. And while the income rises you posted are adjusted for inflation, my point still stands that the income rise of the middle income salaries over those years are not that high when you break them down incrementally. Adjusted for inflation, a $230 raise every year over a decade is nothing. Why do you consistently disregard the work that someone who earns $50K a year less than someone who earns $200K a year?

- singlspeed

September 15, 2011 at 5:13pm

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this book is good: http://www.amazon.com/Winner-Take-All-Politics-Washington-Richer-Turned/dp/1416588698

- mmathog

September 15, 2011 at 5:13pm

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Roid writes: "What was established on the last thread is that, contrary to your bullshit, the income share of the top 1% and the top 10% declined rapidly at the start of WWII, stabilized at a much lower level in about 1943 and remained there until 1980. " Sounds good, except the socialist-with-an-axe-to-grind calls BS on this: www.stateofworkingamerica.org/ Big graphic, front page. Except for a few 1-2 year setbacks, the gains have been steady, and the trend is clear. The rich have always been getting richer. Always. Non-stop.

- seattleeng

September 15, 2011 at 5:14pm

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seattle always ignores the question of rents and institutionalized crony capitalist corruption, I don't know why he does this.

- mmathog

September 15, 2011 at 5:15pm

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Another thing, the social consequences of extreme wealth inequality are not always or even often revolution. The much more likely violent consequence is crime. America's wealthy should decide whether they like the idea of living with armed security details and with K&R consultants on retainer. Last year, the murder rate in Venezuela was 1 per 1000 population. Welcome to the future a la Phillip K Dick and William Gibson.

- AaronW

September 15, 2011 at 5:26pm

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singlespeed writes: " But you seem to imply that everyone who sees their income rise by 20 or 50% rate is deserving based on the value they bring to the economy, i.e. their hard work and intelligence." No, I'm not. No large group is seeing these gains year after year. Even the 99.0 to 99.5% group saw their income gains go from $189K to $413K from 1980 to 2005. That's just a 2.18X gain. Close to what the top 20% saw. Over 25 years, this is a 3% increase (above inflation) per year while the middle class receives about 1% per year. Do you think this difference is excessive? In other words: Over the last 25 years, the middle class has seen their income rise about 1% per year (above inflation) and the 99.0 to 99.5% group has seen their income rise around 3% in excess of inflation. Do you think this difference is excessive? I do not. What is happening will ALWAYS happen if you decide to pay the harder working/smarter/more skilled/more talented more. It is inevitable. And it happens everywhere. The US is not at all unique here.

- seattleeng

September 15, 2011 at 5:29pm

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because dollars = virtue, mmathog, didn't you know? In seattleng's universe the relationship between income and production is direct and entirely frictionless. If you make money it is, ipso facto, because you have created wealth.

- AaronW

September 15, 2011 at 5:31pm

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mmathog writes: "seattle always ignores the question of rents and institutionalized crony capitalist corruption, I don't know why he does this." No, I've address many times. The tax rates required to make a safe and productive society suitable for trade, growth and opportunity are very, very low. We need only look at historical rates to confirm this. If you want to engage on this, then be my guest. But be prepared to finish what you start.

- seattleeng

September 15, 2011 at 5:34pm

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AaronW writes: "because dollars = virtue, mmathog, didn't you know?" No, but dollars are a good proxy for productivity.

- seattleeng

September 15, 2011 at 5:35pm

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It is, seattle? And what was the value "produced" by the financial engineers in the 90s and the 00s, for which they were paid trillions? Where is that wealth now? What good has it done anybody?

- AaronW

September 15, 2011 at 5:57pm

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the gap between rich and poor is ahistorical, why look at historical tax rates? (which by the way, have changed a lot over time?) also, the data stops in 2005. 2005!!! did anything happen between 2005-2010? read the book I cited above.

- mmathog

September 15, 2011 at 6:00pm

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Seattle says "Even the 99.0 to 99.5% group saw their income gains go from $189K to $413K from 1980 to 2005. That's just a 2.18X gain. " So a 218% increase in income over 15 years is modest? It sounds modest and relatively innocuous when I say this person sees only a 3% rise in their income over a decade vs. the 1% income this other person saw over the same period. If I say the person making $250K and sees a $75K increase in their real income over ten years vs. the person who makes 50K and sees a $5K increase over the same period, one realizes that the percentage game obscures the income gap numbers only so much. I'm not refuting that the rich don't get richer while the middle class and poor get poorer. That's been shown throughout history through the exploitation of labor and markets by the rich at the expense of those much farther down on the income ladder. What I find disingenuous is when you try to claim that such income gains are modest. Sure as a % of the individual's income but in real dollars you should realize that those 'modest' spreads in income gains are not so modest at the top and very modest at the bottom.

- singlspeed

September 15, 2011 at 6:01pm

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Good article Mr Noah. Those frank and disturbingly accurate Wall Street reports never cease to amaze me. From the mouth of babes. If those points were raised by Democrats the Republicans would shout and scream socialism. The truth is America has been hollowed out by Globalisation and extreme right wing politics. Hopefully, this article will signal more of a focus on inequality than we came to expect from Chait. Who, certainly towards the end of his TNR tenure, seemed more interested in polishing his "centrist" credintials (and therefore CV) by attacking the Left.

- IggyPop

September 15, 2011 at 6:32pm

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Sorry old boy. What the website you link shows is that, as has been the case consistently in the past, you do not know how to read graphs, charts and tables. If you use the "spinner" as invited by the website, you will find that, exactly as I say, the income share of the top fell sharply starting with WWII, was stable until 1980, and then rose again. The rich have gotten richer, as has the nation, but their share of national income has not always grown at the expense of the bottom 90% as you claimed in the last thread. You are simply drop-dead wrong. What is more, contrary to your claim that rising income for the wealthiest raises the income of everyone else, the period from 1940 to 1980 was in fact the period of highest GDP growth, outpacing both the periods before and after. While this alone does not prove that income equality is good for growth (ds111 claims other mysterious forces to be the cause), one certainly cannot argue based on these facts that income inequality is good for growth. That is completely counter-factual. Please learn how to read graphs, charts, and tables, and, until you do, stop polluting this place with nonsense.

- roidubouloi

September 15, 2011 at 6:58pm

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Roid, you consider a region in time where the top 10% "only" get 30% of all the income to be a period of fairness? More fair, perhaps. But it doesn't refute my point. My assertion was that the top 1% have always enjoyed increasing gains as long as we've been tracking this stuff. In fact, the share of income going to the top 1% has never dropped below 7.5%, from 1913 to today. The rich have ALWAYS gotten richer faster. Only if the % of income going to the top 1% drops below 1% will they not. And that ain't happening anytime soon.

- seattleeng

September 15, 2011 at 7:47pm

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singlespeed writes: "What I find disingenuous is when you try to claim that such income gains are modest." It's over 25 years, not 20. Do you think a middle class worker with modest education and modest motivation deserves a 1% raise each year (above inflation)?

- seattleeng

September 15, 2011 at 7:53pm

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"Do you think a middle class worker with modest education and modest motivation deserves a 1% raise each year (above inflation)?" If there is the growth in GDP to support it, why not?

- AaronW

September 15, 2011 at 9:05pm

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Roi, I don't buy your "income inequality is bad for growth" mantra, but agree it is worth consideration. In looking at the data, it seems far more likely that income inequality is a dependent variable of the tax code: the lower and broader the tax code, the greater the apparent inequality gap. (1925, and today, say.) If not, you would expect to see growing wealth differentials, and we have not seen such, as far as I can tell - and Saez and Picketty's data suggest that we have seen no change in relative wealth (as opposed to income). To clarify, if income is unequal, then over time the wealth differential should be increasing; since wealth differentials have not widened, it makes more sense that realized income is a function of the tax code, and that you are chasing windmills, as I am wont to do. If I am right, then your suppositions about the relationship between income disparity and economic growth are irrelevant. Thanks To Tim for reigniting a classic TNR discussion. Tim, I'm curious about your thoughts on this subject, one that in my view has been poorly thought out, as it could have a significant impact on the conclusions of your book.

- ds111

September 15, 2011 at 10:40pm

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Aaronw writes: "If there is the growth in GDP to support it, why not?" OK, good, so we can all agree the person doing mundane work, such as operating a ride at a carnival, can see his income grow in excess of inflation. Not at all controversial. Now, do you believe that someone with an exceptional skill that is held by few others (let's say Steve Jobs or Lebron James) and is recruited by numerous other employers can seek out and get more than 1% per year? How much more? 2%? 3%? 4%? That is, is it reasonable that other employers might offer in excess of 1 or 2% per year, on average, to get this person? The answer is "of course". Aaron, I believe you are a doctor. Is a doctor that can treat 20 people per day more valuable than the doctor than can treat 15 people per day, assuming similar outcomes and similar client mix? Is it reasonable for the employer to offer one doctor a higher annual bump than the other? The answer again is "of course" And that is all we are seeing here. Someone with money is deciding that they are willing to spend a little bit more, year in an year out, to get something a little better. Einstein is rumored to have replied "compound interest" when asked what the most powerful force in the universe was. And this is all we are seeing here. The doctor that can restore vision will get a raise in excess of the garbage man. And even though that annual raise difference is fairly small, just a few %, over 200 hundred years it results in the massive discrepancies we see today. If an MIT graduate gets an annual raise that is 4% higher than the garbage man, then even if they start at the same salary, and 35 years the MIT graduate is making 4X more. His kids go to college, the garbage man kids don't. Adn that 4X has moved to a staggering 16X difference in wage. In just two generations. Is there anything sinister about that? No. And really, the only way to stop it is to put a cap on what employers might pay really good employees OR to ensure the education of the bottom is tracking that of the top.

- seattleeng

September 16, 2011 at 1:57am

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Your point, seattle, is completely refuted by simple algebra. You just don't know it. Your claim is that the income of the wealthiest has "always" been growing faster than the income of everyone else. But if the income share of the wealthiest, both the top 1% and the top 10%, is falling, then it must be the case that either the income of the wealthiest is growing slower than that of everyone else or falling faster than that of everyone else. The period from 1940 to 1980 completely refutes your claim. As well, that period, of greater income equality, is the period of greatest growth in GDP over the last century. ds111 wants to deny that greater income equality fuels GDP growth, although there is a clear macroeconomic channel by which that can occur. I will get to him in a moment. What cannot be claimed based on the history is that more income for the highest earners fuels growth because that is contra the facts. Higher growth is associated with greater income equality. The reason is simply this: In an economy that is not short of capital and the ability to generate capital, such as ours (meaning we are not supply constrained but demand constrained), growth is driven by consumption demand, and investment is driven by the consumption demand that it is meant to meet. Income equality generates higher demand. As or more important, high demand and full employment generate wage pressure, and wage pressure is the source of technological innovation that increases labor productivity. Therefore, we gain a double benefit from income equality, high output and a high rate of productivity gains. ds111, even if your factual claim were correct, which it is not, I cannot make any sense out of your argument relating wealth and income. "Here are some dramatic facts that sum up how the wealth distribution became even more concentrated between 1983 and 2004, in good part due to the tax cuts for the wealthy and the defeat of labor unions: Of all the new financial wealth created by the American economy in that 21-year-period, fully 42% of it went to the top 1%. A whopping 94% went to the top 20%, which of course means that the bottom 80% received only 6% of all the new financial wealth generated in the United States during the '80s, '90s, and early 2000s (Wolff, 2007)." http://sociology.ucsc.edu/whorulesamerica/power/wealth.html The increasing disparity in income shares, and wealth, is due to policy at many levels, certainly due to the tax code and the decline in progressivity. But the effect is also seen in gross income. This means that labor income has fallen, lower wages. This is exactly what one would expect from higher "full employment unemployment," due to slack demand, and from the international wage competition due to unchecked globalization and free-trade fundamentalism.

- roidubouloi

September 16, 2011 at 5:33am

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seattle says, "The tax rates required to make a safe and productive society suitable for trade, growth and opportunity are very, very low. We need only look at historical rates to confirm this. If you want to engage on this, then be my guest. But be prepared to finish what you start. Jesus Christ, will the bullshit never cease? How is it that the right, all parts of it most certainly including libertarians, can shamelessly and endlessly make declarations of fact in the service of their ideological craziness that are the complete opposite of the reality? The period of highest rate of economic growth in the US, 1940 to 1980, coincided with the greatest income equality and the most progressive tax rate structure. Post-1980, the rate structure became less progressive, income became much more unequally distributed, and economic growth slowed. One can argue, as ds111 does, that the causal relationships are unclear or unproven. What is impossible to argue is that high growth has even a positive correlation with low tax rates when the opposite has historically been the case.

- roidubouloi

September 16, 2011 at 7:11am

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Seattle's arguing with the wrong people. The original Noah article is pointing out that the wealthy think they've done their job by reducing wages and benefits for workers, and that these conditions make Wall Street a great investment environment. I don't know why anyone hasn't pointed that out to Seattle, and asked him to direct his comments toward his masters. From the way it looks, his rabid enthusiasm for the status quo is even greater than theirs.

- jet

September 16, 2011 at 10:55am

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Roid writes: "The period of highest rate of economic growth in the US, 1940 to 1980, coincided with the greatest income equality and the most progressive tax rate structure. Post-1980, the rate structure became less progressive, income became much more unequally distributed, and economic growth slowed." During this time you look at so fondly, the top 1% earned 8% of all the income. During the times where you claim the top 1% was stealing it all, they earned 12% of all income. Do I understand you correctly? If the top 1% were again just taking 4% less of all the income income, you would be believe we are in another period of great equality? If there is $10T in income, then 4% is $400B. 1% of families is 1M people. So, if the top 1M earners in this country gave $400B to the other 99M families...you'd call this a great period of equality? This is only $4000 per family. Is that all we are fighting over here? Seriously? All this pissing and moaning from you is over $4000 per family? $4000 per family is all it takes to return our society to the greatest period of equality we have ever known? Roid, your such an easy date. I had no idea we were just $4000 per family away from financial equality. Or perhaps the 1950's were almost indistinguishable from today in terms of income distribution.

- seattleeng

September 16, 2011 at 12:20pm

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Roid writes: "You just don't know it. Your claim is that the income of the wealthiest has "always" been growing faster than the income of everyone else. But if the income share of the wealthiest, both the top 1% and the top 10%, is falling, then it must be the case that either the income of the wealthiest is growing slower than that of everyone else or falling faster than that of everyone else. The period from 1940 to 1980 completely refutes your claim." In a period of GDP contraction, you'd be correct. But when GDP is growth is white hot as it was during the period under discussion, that a person takes a smaller piece of income share doesn't matter to that wealthy person, because the GDP growth is fueling their gains. Which is what I noted previously as a irrefutable: Never has there been a point in time where the top 1% have suffered and the middle classes have thrived. The gains of the middle class (and top 10%, 5%, etc) largely track the gains of the top 1%. Ergo, take care of the top 1%, and the rest will follow. Clinton and Reagan both showed this. Are claiming the wealthy suffered in the 1950's at the expense of the middle class? They did not. It was a period of great prosperity for all. Remember, I originally made this point in response to Sophia who seemed to be asserted there have been periods in time where the wealthy suffered and the middle class thrived. That has never been the case. Your data doesn't refute the point either. What is broken today is that Obama is so focused on demonizing the rich and wealthy, we have forgotten they they create our jobs. They are the ones that take the risks, invest the money, allocate the capital. Without them, we get what we have today.

- seattleeng

September 16, 2011 at 12:30pm

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Nope, seattle. You are still challenged by very simple algebra. If the income share of the top tier is falling, then, of necessity, either it is growing at a slower rate than GDP is growing or it is falling at a faster rate than GDP is falling, if indeed there is a contraction. Although you are trying now to edge away from your claim, you had previously asserted that the income share of the top tier has been growing secularly and that this is necessary for middle class gains. This is not true. It fell from about 1940, stabilized at a much lower level in about 1943, and remained there until 1980. Since this was also the period of fastest GDP growth, all your claims are wrong. All of them. The claim that there has never been a time when the wealthy suffered and the middle class did well is meaningless because there has never been a time when the wealthy suffered. But the middle class did best, both relatively and in terms of rate of growth, when the wealthy did less well. That the gains of the top tier "track" the gains of everyone else, because gains come easiest when the economy is growing, is not even evidence that "taking care of the top 1%" produces gains for everyone. That could just as easily establish causation in the opposite direction or common causation (i.e., the economy is growing). But the irrefutable fact remains that the highest growth rate for the economy is associated with lower income share for the wealthiest. No one has forgotten that the wealthy create our jobs because they don't. Demand creates jobs. Jobs create capital.

- roidubouloi

September 16, 2011 at 2:41pm

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You also cannot get any data whatsoever correct, seattle. From roughly 18% in the mid 30s, the income share of the wealthiest 1% declined to about 11% in 1943, continued down to 8% in 1953 and stayed there until 1980. Then it began to rise again to 24% in 2007, its highest level since 1928, just before the stock market crash. That is 3x the share during our period of greatest prosperity and represents as much $3 trillion of current purchasing power. Trivial in its impact on the economy? That is double the entire current output gap. During the same period, the income share of the top 10% declined from a peak of 50%, hit 33% in 1943, stayed there until 1980, and then started to rise until it again reached 50% in 2007. Both such peaks immediately preceded a market crash. Why? Because demand collapsed with so much purchasing power in the hands of the investor class. In the face of such a clear record of the inverse relationship between income shares of the wealthiest and prosperity, you now want to convince us that 17% of GDP, the difference between the peak share of the top 10% and the share during the long boom of 1940 to 1980, should be of no real importance to the bottom 90%. Given the current size of the economy, that's $2.2 trillion of net national income, or $8,150 per capita for the bottom 90% (270 million people) which comes out to more than $25,000 per household. This is supposed to be trivial? You are innumerate, seattle. Or your brain is simply pickled by the toxic stew of extremist libertarian propaganda.

- roidubouloi

September 16, 2011 at 3:05pm

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Without doing the arithmetic for you, I should also point out that the 17% swing in the income share of the top 10% accrued entirely to the top 1%. That is, the shift in income share is entirely between the bottom 90% and the top 1%. All the evidence is that this is damaging to the economy and growth. There is no evidence to the contrary, certainly no evidence that the huge gains by the top 1% have been good for anyone other than the top 1% as you claim. QED

- roidubouloi

September 16, 2011 at 4:19pm

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Roid writes: "Although you are trying now to edge away from your claim" Not at all. In order for the top 1% to show declines, they would have to have periods in which they had less than 1% of the income. But whether the top 1% have 7% of the income (post WWII) or 12% of income (Clinton)...they are outpacing the rest. That is a fact, is it not?

- seattleeng

September 16, 2011 at 4:59pm

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Roid, for your income earned data, does that take into account taxes paid? Does it take into account non-cash transfers in such as medicare/medicaid and food stamps? No, it does not. At least, if you are looking at the populist data reported on HuffPo and NYT Ergo, even if the government increased taxes on the wealthy by another $500B, and then just gave that to the poor, the income would still look just as stilted. Would it not?

- seattleeng

September 16, 2011 at 5:18pm

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You really don't get the algebra. If the top 10% has 20% of national income and in the next period it has 15% of the income, it shows a decline in income share. Income isn't cumulative. If 1% has 20% of the income and has less than 20% of the growth in income, then its share falls to less than 20%. It doesn't need to have less than 1% of the growth to show a decline in share, only less than its current share. Which is no different than saying its income grows at less than the total growth rate. Taxes don't change the shares very much, at least not any more, because they are barely progressive. No, if you took $500 billion, 3% of GDP, from the top 1% and gave it to the bottom 90%, then the income shares of both would show a material change. 3% is a material change in share. Less than 17%, but still material.

- roidubouloi

September 16, 2011 at 5:43pm

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This discussion assumes that we have evidence of a change in income inequality. Other than normal variability, I believe the evidence has been misinterpreted. Yes I know what the tables show, but they ignore many things, most significantly tax code changes which have altered the classification and desired realization of income, which, along with largely demographic changes suggest that when income is defined consistently, income inequality measures have changed little. In support, we do have evidence that there has been no material change in wealth distribution by quintile, and more granularly at the top (from the oft-cited Saez, ironically). If I'm right, charges of growing income inequality are nothing but a myth based on poor statistical understanding, convenient for argument, but destructive to reasoned discourse.

- ds111

September 16, 2011 at 9:25pm

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"OK, good, so we can all agree the person doing mundane work, such as operating a ride at a carnival, can see his income grow in excess of inflation. Not at all controversial." I don't know what "mundane" is meant to say here. Operating a ride at a carnival can involve some grasp of mechanics, a knowledge of safety limits, a good public manner, and a feel for how to reassure and encourage kids. Quite a bit of multi-tasking, in other words. Yes, that person's work is very possibly more valuable than that of the guy creating empty financial products that meet no physiological or social or cultural need whatsoever.

- ironyroad

September 16, 2011 at 9:34pm

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Roid writes: "It doesn't need to have less than 1% of the growth to show a decline in share" The top 1% cannot experience a decline in share if they are getting more than 1% of the income. As soon as they get more than 1% of the income, they are getting richer and the poor are getting poorer. When you have 1% of the population getting 1% of the income, then they are maintaining share. When you have 1% of the population getting <1% of the income, then they are loosing share. What you are celebrating with your post WWII data is that the top 1%'s rate of accumulation slowed a bit. Yawn.

- seattleeng

September 17, 2011 at 3:27am

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ds111 writes: " If I'm right, charges of growing income inequality are nothing but a myth based on poor statistical understanding, convenient for argument, but destructive to reasoned discourse." The problem with the Saez data is this: You could confiscate 100% of the earnings of the top 10% through taxes and give it to the bottom 90% via transfers And the Saez data would still show the exact same inequality. Yes, their view on this is that simple Another oft-overlooked aspect when looking at income inequality is hours worked. Authors trying to prove there is enormous inequality assume everyone works equally, when in fact they don't. Top earners tend to be earners in the prime of their lives working peak hours, while the bottom 20% tend to be retirees with no real income, but lots in the bank and very few hours worked (if any) in a year. When you see the data equalized for hours worked, household size, transfers and taxes, it's really quite expected and not at all sensational.

- seattleeng

September 17, 2011 at 3:38am

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ironywrites: "Yes, that person's work is very possibly more valuable than that of the guy creating empty financial products that meet no physiological or social or cultural need whatsoever." The best way to determine the value of work is to find someone that will pay you to do the work. I might be the best carnival ride operator int he world, but if someone will pay me only $11/hour to do it, then probably it's not a very important or unique skill. Of course, if a carnival ride operator can find someone to pay him $200/hour to do the work, then you are right, it is a very valuable and unique skill. Ironyroad writes: "yes, that person's work is very possibly more valuable than that of the guy creating empty financial products that meet no physiological or social or cultural need whatsoever." yes, but why would someone pay such a high salary to someone to create a financial product if it wasn't valuable? Using money to measure productivity & value might not be the best system in the world, but it's the best system we got.

- seattleeng

September 17, 2011 at 4:25am

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Seattle says: "The top 1% cannot experience a decline in share if they are getting more than 1% of the income. As soon as they get more than 1% of the income, they are getting richer and the poor are getting poorer." I don't know the right way to break the news to you, seattle, but you are severely arithmetically challenged. You cannot possibly hope to grasp the macroeconomics if you cannot understand multiplication and ratios. Whatever the income share of the top 1%, be it greater than, less than, or equal to 1%, that share will change unless the share of income growth is the same as the share of income. Thus, for example, if the top 1% has a 10% share and its share of growth is 5% (5% being more than 1%), its share will decline. If it continues to receive only a 5% share of growth ad infinitum, its share will decline asymptotically from 10% to 5%. Thus, the top 1% can have a declining share even though it is receiving more than 1% of income. What you consider a big yawn is the trebling of the income share of the top 1%, a shift of 17% of GDP from the bottom 90% to the top 1%. As explained to you above, this represents a difference of $25,000 of current household income for the bottom 90%. Given that median household income in the US is $50,000, I don't know how this can be characterized as trivial. But at least trivial is a subjective category. The arithmetic that you do not understand is objective. Your failure to understand the economics is pretty near total. The fact is that you make factual claims about the relationship of taxation and income distribution to economic growth. You claim that low marginal rates, low progressivity, promote growth. But there is no historical evidence of this. The period of our greatest economic growth coincided with the highest marginal rates. As marginal rates were brought down under Reagan, growth slowed. You claim that increasing share for the top 1% raises everyone's income. There is no historical evidence for this. The period of our greatest economic growth coincided with the period of lowest income share for the top 1% and long stability of that lower share. Both peaks in the share of the top 1% in more than a century were immediately followed be market crashes, 1929 and 2008. There is no evidence whatsoever that an outlandish share of income for the top 1% generates growth and lots of evidence to the contrary. But you don't need evidence. You have faith in Ayn Rand. She was a novelist, however, not an economist. Now comes ds111 to tell us that the large shifts we have seen over the past century in the income share of the top 1% are a myth born of an unexplained statistical misunderstanding. This is objectively absurd, right up there with creationism, climate change denial, and the belief that the earth is flat. As usual with the right, when the evidence against its position becomes overwhelming, it simply denies that the evidence exists. So it goes. Finally, if income is taken as the measure of productivity, then the claim that income is the result of productivity becomes completely tautological. We can take this to mean that Bernie Madoff was very productive.

- roidubouloi

September 17, 2011 at 7:21am

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Not unexplained, Roi, why don't you pay some attention? Even the IRS says the income statistics are not comparable. Do you need a treatise? A couple - municipal bond income was not required disclosure until 1986; and much of the income of high earners flowed thru corporate earnings, until early 1980s tax law changes allowed/encouraged that income to flow to personal income. There are many other obvious elements, all pointing to the fact that high income earners saw an increase in reported income, while their economic income hadn't changed a bit. This was in fact the entire point of the 1980s tax legislation. Seattle points out one of many non-tax related issues, hours worked, demographic issues which begin to compare apples to apples. You and too many others hold these income inequality statistics up as some holy grail of evidence. I'm stating that there is no such evidence, just meaningless numbers, but a cheap bit of political fodder for the ignorant. It is a false frame which destroys the premise on which your entire income inequality argument is based. The differential economic growth rates over the periods you speak had nothing to do with your supposition, and are far better explained by other factors. It concerns me because the income-inequality frame is one of either ignorance or demagoguery, widely accepted by narrow minds, and politically destructive.

- ds111

September 17, 2011 at 8:56am

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Yeoman's work, roid. Ds111, you can't simply handwave income inequality away. You sound like an especially good candidate to read Timothy Noah's contribution to the discourse, in which he carefully looks at the effects of many factors to determine what actually had an effect and what did not. He actually evaluates different hypotheses and tries to determine what is going on. http://www.slate.com/id/2266025/entry/2266026 What you have done is point out small holes in the observation that income inequality has been getting worse and assume that this basically destroys the argument. Why don't you point us to a reasoned, mathematical treatment by someone that carefully shows this? Otherwise, what you have done is tantamount to pointing to Climategate to validate your assumption that global warming is a hoax, even though most people who look into various strands of data collection walk away convinced that it is at least happening.

- chaitless

September 17, 2011 at 9:44am

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And this is so, ds111, because you assert it? IRS income statistics seriously understate the income of the wealthy, because there is roughly a $3 trillion discrepancy between GDP and aggregate adjusted gross income. Someone owns that income in the first instance. There is no reason to believe that those who work for wages and salaries, most of whose income is reported directly to the IRS, have a material amount of that unreported and/or untaxed income. It is income from capital, not labor, that does not get included in adjusted gross income for a wide variety of reasons, some of which you yourself mention above. Income distribution statistics are not constructed solely or even primarily from tax figures. There are a wealth of other data collected by the BEA about US household income. Accordingly, changes in reported taxable income are largely irrelevant to statistics about historical income shares. You want to make a moronic claim about a vast conspiracy amongst hundreds of labor economists to create over decades bogus statistics about income distribution? At least do a little work and try to document something, other than your bare assertions that "there is no such evidence," as a basis for this idiocy. There are hundreds of published economic papers about income distribution all over the world. Before you declare this body of work "no evidence," you owe us a bit more than you yourself said so. You only prove yourself here to be exactly the wacko, radical ideologue you pretend not to be, driven in the end to deny all reality in pursuit of your extremist, crypto-fascist libertarian ideology. Of course. How else can you justify such nuttery other than, in the end, by denying reality? I never believed anything else about you, or your pal seattle, but you have been a useful foil here, serving up your wacko right-wing claims to be shot down. But you are a flat-earth nut.

- roidubouloi

September 17, 2011 at 9:49am

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Roid writes: "Thus, for example, if the top 1% has a 10% share and its share of growth is 5% (5% being more than 1%), its share will decline" Yes, BUT, they are still getting richer at a faster rate than the bottom 99%. Just a bit more slowly. Only when share is at or less than one will they stop getting richer faster. So, for the post WWII period where the top 1% had 8% of the all the income. Were they getting richer must faster than everyone else? Yes, they were. The rich will ALWAYS be getting richer and the poor will ALWAYS be getting poorer UNLESS the rich have <= 1% of the income. Disagree?

- seattleeng

September 17, 2011 at 11:43am

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Chaitless writes: "Why don't you point us to a reasoned, mathematical treatment by someone that carefully shows this?" Saez and Piketty are in the minority in their belief that income inequality is significantly higher today. As I noted before, you could confiscate 100% of the income from the top 10%, and give it to the bottom 90%, and their methodology would STILL show massive income inequality. Think about that. Their methodology is flawed. The CBO, for example, believes that after tax income for the bottom 80% has risen since 1979 while Seaz claims it has dropped. And in fact, we can see that in the CBO data series. And yet, Saez data shows stagnation? How can that be? The Census Bureau, for example, reports the bottom 80% have seen a 24% increase in income since 1973. The Census Bureau, for example, also reports barely any growth in the income of the top 5% since 1993 (through 2004). In 2005, the US Bureau of Labor and Statistics published that GINI coeffs have become MORE EQUAL since 1986. And we haven't even touched on the numerous economists that have looked at this and found no big changes in wage inequality over the last few decades.

- seattleeng

September 17, 2011 at 11:59am

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Chaitless writes: "What you have done is point out small holes in the observation that income inequality has been getting worse and assume that this basically destroys the argument. " These are not small holes. The are fundamental flaws. In the article our host Timothy Noah wrote for Slate he relies on the same flawed data by Saez. This data is flawed because it ignores taxes paid by the top earners, and ignores transfers in to the bottom earners. Imagine a society in which everyone retired at at 40 with $1M/year pension. Full medical care. Housing was taken care of the by government if you wanted. Everything else was the same as today. Free government paid-for vacations. That would be awesome for a lot of people. You would have many years to do what you wanted. Money would not be a problem. The Saez methodology would count this as even MORE wage inequality than today. Or as I noted before, if you took 100% of what the top 10% earned and gave it to the bottom 90%, the Saez methodology would count this as the exact same inequality that we have today. These are two examples that would be Nirvana for many here. And yet Saez would report these conditions as deeply troubling. How can you rely on their methodology to tell if you if things are getting better or worse when they would flag Nirvana as problematic? It'd be awesome if Noah would chime in here. The Slate piece has bugged me for this very reason since I first read it.

- seattleeng

September 17, 2011 at 12:10pm

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Roid writes: " There is no reason to believe that those who work for wages and salaries, most of whose income is reported directly to the IRS, have a material amount of that unreported and/or untaxed income." You are kidding, right? What about 401K plans, IRAs, union plans, 529 college savings plans, health care, etc. The middle class in the US, since 1980, has enjoyed a large number of savings plans that are NOT considered income. For you to wave it away as if the wealthy only enjoy these is rediculous. These plans were CREATED for the middle class. Similarly, to pretend that most of the money the top 1% enjoys is untaxed and not even treated as income is just as careless.

- seattleeng

September 17, 2011 at 12:26pm

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This is crazy. You compare things with vastly different endpoints. This is the textbook case for how to lie with statistics. Why is your endpoint always 2005? All your data fluctuate and it sounds like you cherry-pick convenient starting and ending points to win the argument, as opposed to actually presenting us with relevant statistics. For example, the notion that "the bottom 80% have seen a 24% increase in income since 1973" is fine, but if you hide the fact that the country has gotten 100% richer over that time (see http://en.wikipedia.org/wiki/File:US_GDP_per_capita.PNG) you really have to wonder where all the rest of that money ended up going. In fact, if you were in a zero-sum, winner-take-all mood, you could crudely say that the top 20% had to get way more than 100% richer over the same period, just to maintain mathematical consistency. And you would be right. The notion that it is at all fair for the richest country to redirect its fantastical income gains to people who don't really need any more help staying rich is disastrously short-sighted and economically backwards. It is also inconsistent with Americans' views on the matter. If you were to assemble a sample of 100 randomly chosen Americans, they would overwhelmingly tell you that the ideal economic distribution was much more like it was in the 1960s than it is today. In fact, that's true for Republicans, too, in polling. This is why tax rises on the rich are so popular: regular people have a pretty good idea that something is going wrong and they would rather we do something about it. And in the realm of useless hypotheticals, if you took 100% of what the top 10% earned and gave it to the bottom 90%, you would have much less inequality. Because I presume you are taking this money in the form of taxes and restributing it in the form of tax breaks or regular programs. The after-tax income bugbear that you keep presenting would mean that the 90th percentile ($137,600 in 2009) would be the new top of the distribution. You put the 90th-99th percentiles into welfare but a significant number of the top 10% (and many of the top 1%) still have enough in assets and investments to live off of. You have instantly decreased inequality.

- chaitless

September 17, 2011 at 12:46pm

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Besides, what do you say to how the adjustment is discussed here: http://noapparentmotive.org/blog/2011/03/12/winship-vs-piketty-and-saez/ The adjusted graph still has very little bearing on the share increases we have seen to the top 1%. "So, for the post WWII period where the top 1% had 8% of the all the income. Were they getting richer must faster than everyone else?" Look, the way percents means that if rich people grow at a rate of 1% and poor people grow at 10%, the rich will stay rich. Poor people will catch up, though. No one is disputing that 1% of a rich person's income is greater than 10% of a poor person's. In that sense, yes, the rich will always get richer and they will probably make more money for the foreseeable future. But you completely ignore the fact that this isn't what's in dispute. The reason that, say, China is catching up to the US is that the US is growing at lower rates than China is. But by your math, since the US is already so rich and is still getting richer, this can never happen. Percents and basic math says that it can.

- chaitless

September 17, 2011 at 12:54pm

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In response to your (much) earlier comment, roid: I work in medical research, which means that in some people's eyes I am just a ward of the state since my work livelihood currently depends on the continued existence of the NIH. I like Chait (except for his education policy, as you may have noticed) and I also like needling mr_rationale, so in memory of chait, I will remain chaitless. If I were less principled, I suppose I could recast myself as a visionary who saw what the Chait-less world would be like and took steps (mainly retaking the screen name from the right) to prepare for this new reality. I am too young to have a Marxist-Leninist axe to grind, and the Soviet Union collapsed before I hit the age of reason, I take it on authority (and archival historical materials) that communism really was/is terrible. Since my pre-teenage years were forged in the 1990s, I am satisfied enough with the notion that the mixed economy supported by an adequately funded regulatory state is the way to go. I used to be quite surprised that Republicans were able to convince people otherwise, but then I started to read people like Judis and Chait over here at TNR and the collapse of the left under Reagan/Thatcher, exploding income inequality, and the deep Republican cynicism that leads them to suppress voters and minimize turnout in order to perpetuate economic policies so out of step with the populace--all of that started to make a lot of sense. As for formal economic training, I read an AP economics review book and did well on the exam, so that accounts for college introductory economics. Beyond that, I took a course in international political economy--this was very instructive, as we looked at economic institutions in different countries from a comparative and historical perspective and were able to understand the different eras of globalization, how the gains (which are good) can come to be distorted if the political landscape is right, and the general parameters of trade barriers, currency areas, and (a little bit of) counter-cyclical macroeconomic stabilization. Beyond these things, I have taken some European history and postwar European history, so I know something (but not extensive amounts of something) about the Marshall-NATO economic miracle that allowed them to hit full employment and fund their social safety nets. But all of this knowledge is not enough. I am a big fan of Tony Judt, who was--in life--very informative about postwar European history and the evolution of the European welfare state. I am also a fan of Paul Krugman who, even if you don't agree with his politics as I do, trots out decently reasoned macroeconomic arguments day in and day out and manages to show that it is possible to be an economist and favour the common weal at the same time. Even Adam Smith wasn't all "greed is good". Generally, I think the NY Times, TNR, the Economist, and NY Review of Books are the rudiments of continued engagement with the changing political and economic world. And they happen to write some good things about arts and letters from time to time, which is always a plus.

- chaitless

September 17, 2011 at 1:32pm

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"The rich will ALWAYS be getting richer and the poor will ALWAYS be getting poorer UNLESS the rich have <= 1% of the income. Disagree?" Of course I disagree. I don't know how else to explain this to you. If I have 2/3 of the pie and you have 1/3 and the pie doubles and we still have the same shares, 2/3 and 1/3, then certainly the absolute quantity of my additional pie is bigger than yours. But we are both growing wealthier, not poorer, and doing so at the same rate. It is not correct to say that the I am getting richer and you are getting poorer. On the other hand, if have 2/3 of the pie but only get 60% of the increase in the pie, my share of the pie shrinks. Your claim has been that the top 1% is always gaining share at the expense of everyone else. This is false. It lost share from the 1930s until 1953. The its share stabilized at 8% until 1980. Then it grew again. During this period as a whole the top 1% grew richer at a slower rate than everyone else. And this was the period of greatest GDP growth. Reality makes complete nonsense of your claim that growth for everyone comes from even faster growth for the wealthiest. Such evidence as exists is directly to the contrary -- greater income equality is associated with faster economic growth.

- roidubouloi

September 17, 2011 at 3:34pm

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Adam Smith was very concerned about the common welfare, chaitless. If he were writing today, the Republicans would consider him a socialist. He saw the market as a means to a social end, not as an end in itself.

- roidubouloi

September 17, 2011 at 3:42pm

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Chaitless writes: "For example, the notion that "the bottom 80% have seen a 24% increase in income since 1973" is fine, but if you hide the fact that the country has gotten 100% richer over that time (see http://en.wikipedia.org/wiki/File:US_GDP_per_capita.PNG) you really have to wonder where all the rest of that money ended up going." You gotta keep up, buddy. The new wealth is going to those that create it. We covered that on the first page. I think everyone agreed that a welder in Akron didn't deserve too much of the wealth that Google created, outside of the creation that came from the US infrastructure. And for that US infrastructure, we roughly pay the welder a 1% increase ABOVE that of inflation. And we pay the hyper creators around 2-3% ABOVE that of inflation.

- seattleeng

September 17, 2011 at 3:44pm

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Roid writes: "If I have 2/3 of the pie and you have 1/3 and the pie doubles and we still have the same shares, 2/3 and 1/3, then certainly the absolute quantity of my additional pie is bigger than yours. But we are both growing wealthier, not poorer," Alas, and yet we see even our poor and middle class have more than their predecessors did 10, 30 and 50 years ago. They are not poorer. That is that the CBO tells us. In today's dollars, the middle class today has more income than they have ever had historically. Now, just because GDP doubles doesn't mean everyone gets twice as much. Remember, nobody here believes that if Google creates $100B in new wealth that a welder in Akron gets a proportional slice of that. Everyone understand that Sergay in Brin get a lot, then the shareholders get a lot, then the users get a lot (from the service) adn then the government gets a slice. Adn the government dilutes that slice with their efficiency, and shovels a tiny piece to the poor slob that had nothing to do with creating google. But you see to believe that if Google creates $300B in wealthy, then every man woman and child get a healthy slice of that? The issue you face here is this: Some people are really good at creating wealth. And some people just kind of bump along. They will never do as well as the wealth creators. In any society.

- seattleeng

September 17, 2011 at 3:50pm

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Total Federal tax rates in 1960 were much more progressive than in 2004 even while gross income was more unequally distributed in 2004 than in 1960. As a result, a comparison of after-tax income in 2004 and 1960 would show even more skewness than a comparison of pre-tax income. elsa.berkeley.edu/~saez/piketty-saezJEP07taxprog.pdf You wanna claim the methodology is wrong, you have to read the paper and then explain why.

- roidubouloi

September 17, 2011 at 3:53pm

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Your claim was that increasing income share for the wealthiest generates higher GDP growth. That is wrong. Your little drama about google has virtually nothing to do with income distribution in the United States because the overall labor share of income has zero to do with google or even lots of googles and everything to do with slack labor demand and offshore competition. If labor markets in the US were tight and labor rates were higher, even google would have to pay more for labor and its founders would be a lot less wealthy. Right now, profits of industry are extremely high because labor share is low. This has zero to do with "wealth creation." The libertarian paradigm about Michael Jordan, google, blah, blah, blah accounts for a tiny share of total economic activity and there is no reason whatsoever to believe that Michael Jordan would not have played basketball or google would not have been created if tax rates were a lot higher. What else would they have done?

- roidubouloi

September 17, 2011 at 4:02pm

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If tax rates were as progressive as they were in the 1960, the wealthy would still have much more in absolute terms than they did then. Surely this means that they would have enough and we have no reason to be concerned for them in such a rate regime. If we can also balance the budget and have faster economic growth with much more progressive rates, as is likely based on such evidence as we have, then there is no reason whatsoever not to want to return to a highly progressive tax system -- other than the insatiable greed of the wealthy and their libertarian bootlickers assuring them that their wealth is the result of their virtue rather than of economic rents.

- roidubouloi

September 17, 2011 at 4:07pm

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Roid writes: "Your claim has been that the top 1% is always gaining share at the expense of everyone else. This is false. It lost share from the 1930s until 1953. The its share stabilized at 8% until 1980. Then it grew again. During this period as a whole the top 1% grew richer at a slower rate than everyone else." No, they did not. Let's put some numbers to this so you can understand it better: Assume 100M families, and $10T in total available income. Assume 1% of the families get 8% of the income, as in PostWW2. That is 1M families sharing $800B in income, or $800K per family. Nice to be rich. Assume 99% of the families get the remaining 92% of the income. That is 99M families sharing $9.2T in income, or $92.9K per family. In this super simple and contrived example, at a time where you claimed the rich grew richer more slowly, you can see the per-family income of the top 1% KILLED the other 99% by more than 8X. 8X!!!!! Now, what if the top 1% took 12% of the income? A time of great evil according to you. That means the top 1% have an income of $1.2M per family. . But the bottom 99% have an income of $88.9K per family. See that? Even though the top 1% had 50% more of the income, the bottom 99% saw just $4000 less (about 4.5$). So, during the "good times", the bottom 99% see $4000 extra per year. The top 1%, however, still see their riches grow at $700K per year higher than everyone else. Thus, your statement that the top 1% grew richer at a slower rate than everyone else is crap. They outpaced everyone else as a % and/or by absolute values ALWAYS. ALWAYS. ALWAYS. Again, I remain shocked that you consider this PostWW2 a period of great equality. it is virtually indistinguishable from where we are today.

- seattleeng

September 17, 2011 at 4:32pm

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Roid writes: "If tax rates were as progressive as they were in the 1960, the wealthy would still have much more in absolute terms than they did then." Tax rates were NOT more progressive in the 60's. The reason tax rates are so progressive today is become most pay no taxes. Thus, the progressivity is very high. Remember, progressivity is a measure of how much the rich pay versus how much the poor pay. If the poor pay less, the progressivity is increased. The poor are paying less taxes than ever today.

- seattleeng

September 17, 2011 at 4:34pm

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Roid, I think it's time to stop. This guy isn't armed with facts. He is armed with his unshakeable belief in the rightness of his ideology. Note that he had absolutely no response to my real world example of the US growing at a slower rate than China and China actually catching up. The fact of the matter is that if you permit differential growth rates, then over time the rich still get richer but other people start to catch up (and may even overtake them). I don't even think the rich dispute this, which is why they are so vociferously against "sharing the wealth". If increased gains go to others, then that means their days on the top poring over their investments are numbered. They would have to do some real labour. Also note that his Google example is amazingly wrong. Google is successful because it is profitable. That is to say, the extreme capitalist would conceive of their worth entirely within the perpsective of "shareholder value". (Whether this is the right way to judge Google's success is for another conversation.) Even so, over 95% of Google's profits (its substrate for shareholder value) come from advertising. That means that even if you impute to Google the chimerical ability to summon up jobs from thin air, they may only create jobs because there is demand for their product--namely, Google search ads. Google search ads only work as a money-making vehicle because they are able to advertise to consumers. That is to say, if you removed the petit consumer from Google's model, it would not have come into existence. If there weren't over 200 million Americans online, using Google to search and occasionally clicking on their ads, their market capitalization would disappear overnight. In fact, without a steady base of consumers clicking, Google would never have gone public in the first place and would probably be as "successful" as your average search engine at the dustbin of history. If Google truly believed that they autonomously generated wealth and jobs, they would have very few customers and no base from which to generate profits. The customers are the demand creators responsible for the unprecedented success of Google as a product. Period. The funny thing is that if you went up to Google engineers (I know some) and asked them whose version of economics and society squares better with reality and the history of their company, the matter wouldn't even be close. But that's not to say that seattleeng's economic framework doesn't ever work. European feudal societies were not very market oriented. Buying, selling, and exchanging things was quite expensive, mostly limited to cities, and often hamstrung by the various inefficiencies in tax collection, infrastructure development, regulatory application, and the rule of law--inefficiencies that characterized feudal states. Moreover, in this world, states were small and disorganized, containing micro-states and fiefdoms almost entirely controlled by single economic actors. Rich lords had almost all of the wealth and land, controlled institutions, and directed the warmaking capacity. In this special case, the landowner really did have the power to create jobs by disbursing as much of his hoarded-up demand as he wished. If he wanted to live in a castle maintained with groundskeepers and direct a standing army, he could do that as long as he could pay for all of it. In the feudal case, the rich superman has the power to create jobs. But note that it's constrained by demand. If he can't provide the demand to support his army, his army may very well turn against him because they are not getting their due. But, you know, since no country in the OECD operates as a feudal society, you have no standing to say that rich people or entrepreneurs just wave their hands and create jobs. There are other classes of people with much more wealth that make spending decisions that power the economy. These are the people who create jobs. It's as simple as that.

- chaitless

September 17, 2011 at 5:27pm

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chaitless writes: "Note that he had absolutely no response to my real world example of the US growing at a slower rate than China and China actually catching up." Not sure what you wanted me to comment on. This is largely a non-sequitur you've introduce here as China isn't stealing their GDP at the expense of the US. China will grab share from the RoW long before they will make a serious dent in the US. Thus, their gains come at the expense (today) of Europe and Asia and India. Over the next ~20 years, China will likely grow their GDP 10X, and the US will only grow it by 2X. The US has 4% of the population, and 25% of the "income." China has 20% of the population, and 8.3% of the "income." The reason this is a non-sequitur is because you've introduce a 3rd group into the dynamic (the RoW in this case). Of course China can make huge gains at the expense of Europe. Just like the 4rd quintile can make enormous gains at the expense of the middle class. But that isn't what we are talking about here. Roid is trying to find a period of time where the rich haven't done well. And he's falling short. His example where the rich "only" made 8X more than the other 99% is suspect.

- seattleeng

September 17, 2011 at 9:34pm

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Chaitless writes: "Google is successful because it is profitable" Chaitless, you are in the weeds here. I am not talking at all about how google works. I am using google as a proxy for an entity that has created wealth from nothing. That is what our GDP growth comes from. It is not from GM workers hanging twice as many doors per hour. It is from someone doing something that wasn't done before. A spark. An innovation. A new idea. Why in the hell you are wondering what Google engineers would think of this I have no idea. It's totally irrelevant. Again, keep up buddy.

- seattleeng

September 18, 2011 at 1:05am

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seattle: "Of course, if a carnival ride operator can find someone to pay him $200/hour to do the work, then you are right, it is a very valuable and unique skill." If monetary reward is the only available criterion for valuing work, then one wonders why the crucial work of bringing up the next generation of human beings is often close to being unpaid volunteering. There have always been different ways of valuing the one or the other contribution to social production and reproduction, but there is nothing that says the monetary scala is better than others (although it is one, that's undeniable, and it appears to be simple). But your own point undermines itself -- the Wall Street unregulated (or badly regulated) markets pushed the world economy into crisis, but people got paid well for it. That puts a big fat question mark over the sensitivity of pecuniary values to human needs.

- ironyroad

September 18, 2011 at 1:07am

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To put it another way, the economy is not some glittering cosmic force that human beings are meant to serve, and have their contribution valued entirely by a combination of arithmetic and greed, but rather the economy should be a dynamic configuration of production and exchange that is meant to serve human beings.

- ironyroad

September 18, 2011 at 11:59am

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Irony writes: "But your own point undermines itself -- the Wall Street unregulated (or badly regulated) markets pushed the world economy into crisis, but people got paid well for it. " "Badly regulated" implies that laws were broken, just not noted. Outside of a few brokers forging signatures during lunch, laws were not broken. Otherwise, a lot more people would be in jail. This was a purely legal meltdown. And alas, in the runup wall street responded exactly as you'd expect them to respond when given the ability to loan tax payer money at no risk to themselves. They did it as fast as humanly possible, with as much efficiency as possible while earning as much as possible. What did you expect to happen? When those in the early ought's noted a moral hazard here, it's unfortunate Frank et al didn't want to listen. This is why you don't ask a 3rd party to loan money on your behalf. Bad things happen.

- seattleeng

September 18, 2011 at 12:37pm

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irony writes: "There have always been different ways of valuing the one or the other contribution to social production and reproduction, but there is nothing that says the monetary scala is better than others (although it is one, that's undeniable, and it appears to be simple)" The wonderful thing about money is that it requires people to prioritize and allocate their good will. I think that is why those on the right are so drawn to it, and those on the left are so repulsed by it. Fundamentally, those on the right have a very good sense that there are limits in this world, and the best way to prioritize those limits is to have everyone "vote" (with money) to determine what those actual limits are. It is a perfect mechanism. Every day as I buy lunch, buy shoes, buy a new shirt... I am telling people that are doing a good thing (making a desirable product) to keep doing what they are doing. And I'm telling people that are making a crappy product to try harder, albeit indirectly. Most on the left I know never really want to tell one group they are doing well and thus (indirectly) punish another group. They don't like the idea of negative consequences heaped upon a person when that person is trying even a little bit. And so they always like to talk about how things matter other than money. And they are right, other things indeed matter. A perfect example is art. Those on the left I know go on and on about how the government should be funding art. And so here in Seattle we have a fixed % of the budget that is spent on art. Why? I don't know. But it's what the people here seem to like. I'm not a big fan of any subsidies. If the "product" (be it oil or alt energy or art) cannot stand on its own, then let it die. The one area I am a bit conflicted on is when the government could more properly direct investment. In those cases, I see something like an XPrize for zero CO2 energy being quite valuable. It's a perfect roll for gov, too.

- seattleeng

September 18, 2011 at 12:51pm

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"'Badly regulated' implies that laws were broken, just not noted." No, the term means that the regulations were insufficient to the dangers, or were sufficient but were not enforced appropriately. Or that, with specific reference to the U.S., previously effective regulation had been deep-sixed by Congress. The crisis was not created by the use of taxpayers' money (although you can make a criticism of the TARP on that basis) but by the increasing and uncontrolled trading of heretofore non-existent or very arcane financial instruments that permitted banks to extend themselves far beyond the borders of calculable risk. The too-easy credit for mortgages was a part of this, but not a definitive part. Had the other stuff not been going on, it would have been manageable problem. Everyone knows this -- even the GOP has given up trying to pretend it was all about those poor black people buying houses. There's probably a tribe somewhere in the Amazon that doesn't know about CDS's, but a messenger is on the way.

- ironyroad

September 18, 2011 at 1:38pm

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Middle household incomes are up since 1979 but the increase is trivial both in historical terms and compared to concurrent income rises for people at the top. Remember too that there are more two-earner families today. There are also more single-parent households. In the aggregate, male incomes have gone down while female incomes have gone up. So it's a complex picture. But basically middle income wages have stagnated, it's more than fair to conclude. There's a lot of debate about whether the middle class's buying power has declined. I'd say it's declined slightly. Electronics, food, and clothing are all cheaper. Poor folks often have plasma TVs, etc. But automobiles, houses, college, and health care are all a lot more expensive. The little things are cheaper and the big things are more expensive. In "Nickel and Dimed" Barbara Ehrenreich documents that housekeepers eat candy bars for lunch because they don't have the money for more. It isn't because food is expensive, it's because housing and transportation are expensive. And remember, she did her reporting during the 1990s tech boom.

- Timothy Noah

October 1, 2011 at 1:35pm

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Not only is our gini coefficient comparable with Mexico's and the Philippines, according to the Gini Coefficient World CIA Report 2009 it is comparable to Russia's. http://goo.gl/mu69F

- Tgossard

October 2, 2011 at 12:49pm

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I have noted here more than once, chaitless, that seattle's description of the economic world is roughly a description of feudal society, not an advanced industrial market economy. He thinks that taxes are the equivalent of the lord of the manor taking your corn and using it directly or indirectly for his own consumption. The people who take your corn today, by exploiting various market imperfections and rent opportunities, are the wealthy. Quite apart from providing public goods, government needs to re-collect most of those rents and redistribute them, just for the sake of efficiency let alone equity.

- roidubouloi

October 14, 2011 at 3:29pm

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