The New Republic

Well, hopefully some of this good fortune will trickle down to me:) Sooner rather than later, if possible:)

- Sophia

March 4, 2012 at 11:39pm

Here, it is helpful to reanimate one of the great 2012 campaign chestnuts: The problem with [Megan McArdle's] analysis is that it is incorrect. In fact, I would go so far as to say her worldview is incorrect, since it's what steered her to posit that inequality trends as old as she is would steadily abate even though she [didn't] have facts to back this up. Maybe it's the libertarian and shaky grasp of macroeconomics in her, since in my eyes Dodd-Frank was much weaker than the 1930s reforms and during the New Deal unemployment went from 25% to 15%.

- chaitless

March 5, 2012 at 12:23am

Chaitless, if you'd counted Unemployment back in the 30s the way we do today (i.e., including those with relief jobs among the employed), then it went from 24-5% all the way down to 9% at the beginning of 1937. For what it's worth.

- Curran1

March 5, 2012 at 12:54am

Thanks, Curran. Happy to see the reinforcements.

- chaitless

March 5, 2012 at 1:24am

A lot of people have a shaky grasp of macroeconomics, not just libertarians.

- liberalref

March 5, 2012 at 1:40am

The Database reflects a sharp drop in income inequality after the 1928-29 financial collapse, but a steady drop only after the 1937 decline; until 1937, income inequality wavered up and down after a sharp drop immediately following the 1928-29 financial collapse. We may experience the same phenomenon after the 2008 financial colllapse. But I doubt it. I've asked before whether very high income inequality is self-correcting, looking at the 1928-29 finanical collapse and the steady drop in income inequality thereafter, leading to the long period of shared prosperity and growth of the middle class that we all know so well; the Database for the period 1927 - 2008, when put on a graph, looks like a bowl (the inequality bowl), with steep (and jagged) sides and a long, flat bottom - unless put on a graph where down means up. The big difference between 1928-29 and 2008 is that the government did not bail out the bankers in the former case but did so in the latter case (supplied the nets and manned them below the windows of the Wall Street high rises, I like to say). In addition, the government sharply increased the marginal income tax rates for the wealthy after the US entered WWII, something unlikely to be repeated this time around. So sharpen your pitchforks and get ready for class warfare. [To be clear, not bailing out the bankers following the 1928-29 financial collapse had terrible consequences, for the bankers and everybody else. But I'd say there's bailing out the bankers, and then there's BAILING OUT THE BANKERS, the latter occuring following the 2008 financial collapse.]

- rayward

March 5, 2012 at 7:14am

To complete the circle, it was the financialization of the economy, and the risky speculation in "paper" profits, in the period leading up to the 1928-29 financial collapse that mirrored the period leading up to the 2008 financial collapse. The 1928-29 financial collapse and the evaporation of all those "paper" profits lead to a long period in which even the term "speculation" was considered dirty ("arbitrage" became the euphemism). As we all know, not only did the Obama administration not take action to end speculation by the bankers after the 2008 financial collapse, the administration (Geithner et al.) actually encouraged the banks to speculate (providing the banks with zero interest rate loans to do it) in order to "re-build" their balance sheets (i.e., capital). Indeed, the take away from Scheiber's book is that Geithner, the one non-banker in the crowd (not counting his service at the New York Fed), went to extraordinary lengths to "protect" the banks and the bankers that run them.

- rayward

March 5, 2012 at 7:34am

I am trying to figure out how Romney will use this information to claim we need to cut the top rates.

- Nusholtz

March 5, 2012 at 8:44am

I don't think any of you socialist libbies understands how much a Maserati goes for these days. 2 Kids at Choate, winter is Gstaad... none of these things come cheap, people. Have a heart.

- Tristan

March 5, 2012 at 8:47am

I hope this gets endlessly repeated--93% of all recovery dollars are going to the top 1%. How can Romney even begin to justify giving more tax cuts to this lot? They get everything already, why give them that much more? And how can the Kock Brothers say with a straight face that they're worried about the federal deficit when they are on the verge of another massive tax cut for themselves? 93% of all recovery dollars went to the top 1%. Wow. God I wish that Obama would've let those Bush tax cuts expire.....

- RedState

March 5, 2012 at 9:14am

Nush, the standard tactic is to reframe the debate, and if necessary flatly deny any uncomfortable truths.

- GSpinks

March 5, 2012 at 10:33am

I think rayward's analysis mixes apples and oranges a bit. I don't believe that the income inequality/equality effects are driven primarily or even significantly by finance (bankers, bailed out or otherwise). Income inequality dropped sharply from the start of WWII due to two effects: full employment, pushing up wage share of output, and highly progressive taxes, pushing down capital share of after-tax income. There are other secondary effects, but I do believe that those two account for the vast majority of the total. Since that time, we have abandoned progressive taxation (courtesy of Reagan) and abandoned even a semblance of commitment to full-employment (indeed we manage the economy so as to maintain unemployment with the stated goal of managing inflation that is now axiomatically taken to include wage gains). Plus, we have globalization and the pressure that puts on labor income, especially on the lower half of the scale. That's a trifecta and the reason why the recovery will more likely exacerbate rather than ameliorate income inequality. If we want to restore income equality comparable to the Golden Age (from 1940 to 1980) when we also enjoyed the highest GDP growth since 1900 or so (because income equality produces demand and growth and wage pressure induces improvement in labor productivity), all three causes of inequality need to be addressed. Right now, none is being addressed. And we see the result.

- roidubouloi

March 5, 2012 at 11:38am

I will begin the countdown to when Seattle shows up to inform us that this perceived divergence is nothing more than liberal fantasy and that the 93% income snatching by the top 1% is deserved because they simply work harder, longer, faster than the under-educated, street sweepers of the NYC sanitation department. 10...9...8...

- singlspeed

March 5, 2012 at 11:46am

If it makes y'all feel any better. Especially Timothy. I'd like to share this eye opening article in Bloomberg about how much pain the One Percenters are feeling these days. Some have resorted to using coupons and forgoing that multi-million dollar renovation! http://www.bloomberg.com/news/2012-02-29/wall-street-bonus-withdrawal-means-trading-aspen-for-cheap-chex.html You really can't make this shit up.

- singlspeed

March 5, 2012 at 11:50am

chaitless, may I be the first on TNR to coin the term "Meganomics" to refer to economically conservative (or libertarian) analysts who don't know what to do with contrary data and basically just make stuff up as they go along.

- wildboy

March 5, 2012 at 11:59am

And don't forget the highly inflationary and unsustainable guns-and-butter Keynesianism practiced by Mr. Lyndon Baines Johnson. That unpleasant fact will never appear in a screed by Karl Roid, however. Also, there were very good wages and benefits for workers at the Big Three automakers in Detroit and environs during this period (and before), but terrible cars were turned out in the main. That is another unpalatable point to the left, and so is ignored. There is wild again with the broad brush. The libertarian economist, Mr. Tyler Cowen, has written that John Maynard Keynes provided the best explanation for the Great Depression, something that some of the Hayek- von Mises crowd has held against him ever since. And believe it or not, it isn't only the right that trims on facts and trends and data. Mr. Paul Krugman avails himself of a highly Manichaean schema, whereby he attacks the ludicrous right (and they are ludicrous), the ones who didn't want to do anything during our last recession, and he lumps most all of his opponents together, mischaracterizing those like Tyler, whom he has called an anti-Keynesian. Tyler has also written that it was simply untenable for the government to do nothing during the recession. I guess when you win a Nobel there is a tendency to think that you can get away with anything. All Noblelists haven't managed the kind of humility that the exemplary Albert Einstein exuded. I am ever amused by those, left and right, who are legion, who think that all that is good and right lay on their side, and all the bad and all that is dishonest is on the other side. In bygone eras, most all of these people would likely have been Manichaeans or Gnostics or Zoroastrians.

- liberalref

March 5, 2012 at 12:39pm

Is financialization of the economy a cause or an effect of inequality? Noah most likely will provide insight in his book. All I know is that the twenties and the aughts bear striking resemblances in the financialization of the economy and the level of inequality. What we also know is that both the financialization of the economy and the level of inequality dropped sharply after the 1928-29 financial collapse; but the financialization of the economy after the 2008 financial collapse has not dropped significantly and, according to the latest data, neither has inequality.

- rayward

March 5, 2012 at 12:47pm

I am always amused by those who, knowing nothing about a subject, like to hear themselves talk anyway. It is an interesting question, rayward, but I incline to believe that financialization is primarily the result of inequality rather than the cause. I take it to be a consequence of more nominal income going to the investing class than they can spend in profitable real investment. The financial sector then invents ways to "invest" the money profitably, except that it is not in the aggregate invested, only traded, and the profit is more apparent than real, vanishing when the bust comes. However, that doesn't mean that the financial sector will not successfully have transferred its built-in, unrealized losses elsewhere in advance of the bust or will not prevail on the government to cover them. But there is surely some feedback too, as financialization can in the short term increase the nominal income of that same class. I think your view would be characterized as Minskyan, but I am none too sure.

- roidubouloi

March 5, 2012 at 1:43pm

Libertarian economist is an oxymoron, like supply-side economist.

- roidubouloi

March 5, 2012 at 1:44pm

Perhaps that's why Krugman doesn't think much of Cowan.

- roidubouloi

March 5, 2012 at 1:45pm

It is only a matter of time before one of my confused conservative friends, grinning maniacally in anticipation of the zinger he has ready for me, declares, "The stimulus was a joke! Did you know that 93% of the stimulus went to the richest 1%??"

- Fishpeddler

March 5, 2012 at 2:34pm

They let Karl Roid out of Bellevue again. I have been wondering where he was. The standard tactic of the Stalinists appears here again. When roid doesn't like what someone says, he merely states that this person doesn't know what he is talking about. The really funny thing is that St. Paul Krugman's footman is not even down with the doctrine. Yes, Krugman has mischaracterized Tyler Cowen's positions, but he has also praised him and his blog Marginal Revolution. In contrast. a few short months back, roid wrote "who cares" concerning my mention of Tyler Cowen. So r., get down on your knees and pay the proper obeisance to your idol and get the doctrine straight. Also, on free trade: Krugman is an echt free-trader and roid hates such trade. Where is the enforcer Mikhail Suslov when we need him?

- liberalref

March 5, 2012 at 2:56pm

I didn't say that someone doesn't know what he is talking about, lib. I said that you don't know what you are talking about. And certainly not because I don't like what you say on the subject, because you don't say anything on the subject. You never do. You don't know how; you don't know even where to begin. You say things like, "Oh, it is all so much more complicated than posters know and the truth is not all on one side." You mean one cannot express all of macroeconomics in a paragraph? Who knew? This is a sort of empty incantation meant to make the speaker, you, sound wise without your actually having to know the first little thing about the subject or venture an opinion. Because you and I both know perfectly well that the moment you do attempt to speak to the issue, it will be perfectly apparent that you don't know a bloody thing about it. That, however, doesn't stop you from criticizing things said by others that you do not understand a word of. You just rely on empty platitudes. You seem very disappointed that I don't slavishly agree with everything that you think Paul Krugman thinks. But then, I didn't anoint him a saint, you did. And as I know quite a bit about the subject, I can form my own opinions and discuss them rather than merely cite someone or other (Cowan? Cowan who?) as being sufficient authority for anything. So do tell us, lib, what is the relationship of financialization to income inequality? How would you like to explain the causal chain? Do you have anything to say or are you just going to cover your ignorance with more of the same irrelevancies? I should also note that "liking" or "hating" free trade and supposing that these are the terms of debate is but another indication of your ignorance. The question is, what are the impacts? There are different professional opinions. You understand none of them, as we saw when this last came up. Opinions that you think of as inventions of mine, because you don't know anything, are, for example, also quite clear in the writings of Paul Samuelson, among others, that I quoted to you. Not knowing anything, you make assumptions that serve only to reveal your ignorance.

- roidubouloi

March 5, 2012 at 3:45pm

Are you just a pathological liar or have you no memory whatsoever? You have done the exact same thing to others as you have to me; you have sworn at them when they have gotten under your skin, you have launched massive ad hominem attacks, you have repeatedly impugned the intelligence of commenters, you have said your opponents don't know what they are talking about. As I have said before, you would make a great Republican.

- liberalref

March 5, 2012 at 7:19pm

Does this serve to establish that you understand something, anything, about the relationship between financialization and income inequality? And do you really think of yourself as an opponent? That would require you to have at least some opinion or thesis. But you don't. You are too frightened to express an opinion or advance a thesis. You content yourself with your faux wisdom that the world is so complicated and the truth so hard to discern. What a load of nonsense. And now you are working yourself into a state, nursing all your imagined grievances, to draw our attention away from the simple fact that you have nothing whatsoever to say to the point. You just like to hear yourself talk even when have nothing to say. If I'm mistaken, and doyou know what you are talking about, lib, why then, please give us your explanation of the reasons for income inequality and its relationship to financialization. Go ahead. Make my day.

- roidubouloi

March 5, 2012 at 8:15pm

Sorry, libref. I'm on the side of Krugman (who's basically right at this kind of thing so often that even conservatives turn to his explication of economics just to know which way is up). And roid provides a pretty plausible theory of how financialization and inequality are related. Rich people are rich mainly due to rents. If a guy who ran a factory and all the people who worked for him had it out on the street, you would see the fruits of labour accrue to the labourers to a much larger degree. That is, the factory owner would not make that much more than the wage-earners. And the latter would pressure him to make sure they received their due. However, with institutions that fail to accord labour with anything near its true share of the revenues (sometimes I forget whether the right to organize is in the UN Charter ...) there is a general tendency for the upper class and the otherwise financialized community of shareholders to fail to remunerate the middle class of mostly wage-earners properly. These are called economic rents and they are made even "rentier" because these people can't spend all of that money. They find ways to invest it in the economy and keep it safely making more money. In a mature economy like ours, most of the economy consists of people working, getting paid, and spending the money on goods and services. A good deal of the excess capital is thus loaned out and invested in companies, shoring up bank reserves, or loaned back to the government at long-ish maturities. In this way, all that money that probably should have been paid to workers is allowed to power the economy in a more indirect manner, and it slowly manages to find its way back to your petit wage-earner who otherwise can't afford a house and will take out a mortgage that makes it cost twice as much as the sticker price because of all the interest he is slowly (and indirectly) paying back the person who should have just paid him more in the first place. It really is devious, roid! Of course, libref, Tyler Cowen really doesn't know what he's talking about sometimes. And Fishpeddler, please post here when you hear the zinger.

- chaitless

March 5, 2012 at 11:01pm

Saez makes a point in his website that Noah still doesn't understand -- wealth not nearly as concentrated as income. And wealth (or net worth) matters much more than income. If you don't understand why.... (why bother, of course liberal parasites don't understand) Income driven by skills/productivity --- not an evil libertarian plot. Computer Engineers make more than English majors, Technology CEOs make more than College Professors, Private sector risk takes make more than public sector parasites, Quarterbacks make more than punters, you get the idea I hope. Yet liberals profess to not understand why. Finally, Krugman 'won' the nobel as a trade economist (for which he was barely above average), he is not recognized for macro econ. He really won the nobel to help with his liberal hack platform.

- mr_rationale

March 5, 2012 at 11:28pm

LOL. This is the most crackheaded comment I've seen yet. If anything, wealth is, insanely, more concentrated than income. The top 20% has about 85% of the wealth of the country. If the income shares mirrored the wealth share, we wouldn't be having this conversation because Occupy Wall Street would have seized the capital.

- chaitless

March 5, 2012 at 11:49pm

I remind everyone that the official [that is, declared by me] thread for posting demented personal attacks and wild rants is the current Marty Peretz thread. I am currently reading the new translation of the nihilist anti-war masterpiece The Fateful Adventures of the Good Soldier Svejk (precursor to Catch-22. I have never been to war, but Svejk and Yossarian must be in my genes, because I feel compelled in certain TNR threads to declare, "Beg to report, sir; I am an idiot."

- skahn

March 6, 2012 at 8:43am

Although only partially on the point of this piece, there is a relevant article (previously recommended by someone else here but I do not recall who) by Joseph Stiglitz. It is responsive to bulbman's comment. Sound macroeconomics, explained completely non-technically (it is in Vanity Fair after all). http://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201

- roidubouloi

March 6, 2012 at 8:47am

In light of skahn's admonition, I am compelled to declare that I have been the very soul of restraint here. So far, I am not moved to participate in the latest Peretzian follies.

- roidubouloi

March 6, 2012 at 8:49am

I am not a mystic, and I am skeptical of ideas such as "cycles of history." But I suspect there is something to the idea. I hope the 1% folks are watching their necks. My eight-year-old granddaughter, usually forbidden to read anything but the most peaceful, gentle, optimistic and sweet children's books -- she was not allowed to read the Cat in the Hat at one time because it is nasty and subversive -- was telling me on her last visit about how she had learned about The French Revolution in her second grade class at her private school for Very Bright Children. She then explained to me how the guillotine works. Some of her fellow school mates are children of billionaires. I hope they are taking careful note. I will worry if building one will be her science project in grade three next year.

- skahn

March 6, 2012 at 8:50am

chaitless - mr rat seems to be slipping doesn't he? It was only a few days ago that he stated that Ford's PE being (considerably) greater than GMs is proof that the market didn't support the auto bailout. Whoops.

- Nari224

March 6, 2012 at 1:39pm

Don't worry, Rationale. Being conservative means being able to make up facts to suit your case. Don't listen to these pansies and all this existential reality they try to foist on you. Stick to your guns, man! This isn't science! When facts don't suit your theories, make them up like the phrenologists did!

Wow. That actually made me a little nauseaus. Go figure.

- GSpinks

March 6, 2012 at 6:43pm

"Rationale" (as opposed to "rational") shares a high degree of overlap with "bullshit", which can be visualized as intersecting Venn diagrams for these two universes of discourse or explication. The rationale, not to be confused with the honest application of reasoned argumentation, tends toward the subversion of fact and logic, by such means as the cherry-picking of data, the omission of important and relevant facts, the inflation of marginally relevant facts and data to positions of central importance, and so forth. Now, the Mr. Rationale who likes to insert the occasional comment on these pages may simply be orthographically challenged, and so not consciously tipping his hand, but nevertheless the monicker fits him very well. The low-brow name-calling to which he frequently descends (e.g., labelling those who disagree with his brand of Randian adolescent thinking as "parasites") does provide a little comic relief, as befits his role as guest buffoon.

- Haole45

March 7, 2012 at 2:23pm