The New Republic

Noah-nothing ventures into dangerous waters -- facts and economics. Not surprisingly he is wrong Wealth is by far the better indicator of financial well being, not income. Not what you make but what you keep. Federal Reserve and other data - which include all financial and nonfinancial assets, including bank accounts, investments, houses and cars - give a more complete picture of the gap. When you count all wealth, not just income, inequality has not gotten worse. The top 1% account for 35% of total wealth, compared with 37% in 1922. In fact, the worst wealth disparity ever was in the 1990s under President Clinton.

- mr_rationale

October 20, 2011 at 2:39pm

You sometimes get the sense that many of the neocon foreign policy guys and gals at least understand why they're viewed (correctly) as being in disgrace. Whereas libertarian economics pundits, professors and shills like McArdle are in some sort of deep denial about the damage their childlike takes on deregulation and market incentives (within the bonus culture of the financial industry at a time - last few decades - when there was tons of money to play with and all sorts of new games to invent) have led to. McAarlde started blogging as "Jane Galt.' From there she built her career as a cheerleader for Wall Street, this while patronizingly explaining to her readers the more dubious (and now brutally discredited) fantasies out of the U. of Chicago (where she attended grad school). Fantasies and fallacies which she accepted as fact, but which remained unknown to some of the dim witted masses. She was wrong. Profoundly wrong. McAardle comes across as a nice person and its understandable that she now wants to dwell on non-issues like Solyndra rather than deal with just how wrong she was (and continues to be) and how discredited her world view is. But, jeez, when her current pathology leads to her to use the Atlantic to make asinine comments like the one above (yeah, we wouldn't want to worry too much about the poor or the middle-class when what's happening with Wall Street may just make everything fine!) it's good to see her called on it. A really nice post by Timothy Noah.

- mtinora@me.com

October 20, 2011 at 2:40pm

I've never heard of the Baker School of Business, Tim. Are you sure you aren't thinking of the U of C's Booth School of Business?

- benjamin81

October 20, 2011 at 2:49pm

Rationaleless is back. The newest rawest, most clueless Heritage staffer who writes this egregious program survived the trauma of losing his love-loathe affair with the departed Jonathan Chait. A slightly smarter person than the Heritage staffer, the economist Raghuram Rajan, notes the growth of inequality across the decades in his book Fault Lines: How Hidden Fractures Still Threaten The World Economy (which I read quite recently) and he says that it must be redressed. Rajan is certainly no radical, celebrating markets as he does. I love how the Heritage nebbish assumes a superior attitude while knowing literally nothing. I much admire your excellent post, Grimes. I learned more about MMA from it. And I agree - this is a great post from Timothy. It was worth the wait.

- liberalref

October 20, 2011 at 3:00pm

Props to Grimes for the explanatory take-down. Megan McArdle is a Brooksian hack in the sense that she tries to cloak her shilling for Republican economic policies in a veneer of being a "libertarian". You know who else says this? The Koch brothers. I'm sure she would have been cheering on Christie and Daniels if they could somehow make it through the needle's eye that is the crazed Republican base. The converse of McArdle pushing libertarianism is a avowed communist assuring us that the government can and will correct every ill by simply taking over the means of production. For the right, the financial crisis was supposed to be the equivalent of the collapse of the Soviet Union for the left. That people like McArdle, Casey Mulligan, and Will Wilkinson haven't changed their tune all that much shows their blindness to this fact and to the political realities that no Republican with a chance of winning the election (once again, by appealing to the crazy base) will ever take us to libertarian utopia, but is almost certain to: 1. Start another deregulatory binge (as they all promise to do) 2. Cut government so savagely as to cause a depression (as the fringier of them admit), and 3. Adopt corporatist policies that pervert the concept of libertarianism (while vowing to increase defence spending) All across a background of the polar opposite of libertarianism when it comes to social policy.

- chaitless

October 20, 2011 at 3:06pm

Actually, for the period 1928 to 2007 (the peaks in inequality) both income inequality and wealth inequality, when put on a graph, look like a bowl. Interesting that both peaks occurred shortly before the crash. This is TN's subject so no more form me.

- rayward

October 20, 2011 at 3:07pm

The first post is ridiculous. 1922 as base comparison doesn't yield much change in income inequality either. McArdle is kind of a hack, too. Her appearances on Bloggingheads are pretty instructive: Denying that anything other than our current path is politically feasible somehow always works out to "things are pretty much hunky-dory as they are (pre-2008) and even if they weren't, the market wouldn't allow us to do anything about it either."

- SEBASTIANSALING@HOTMAIL.COM

October 20, 2011 at 3:12pm

Thanks, Benjamin81. Fixed now. Mr. Rationale: Name your source on wealth, please. I don't actually know much about wealth because I don't think it's where the action is. Hasn't been since we all stopped being farmers. Income is what sustains us. Wealth is relevant only inasmuch as it creates income. (My income calculations always include capital gains.) A hundred years ago the people with the top incomes were coupon-clippers, but that's no longer the case. Today people with top incomes are usually having money thrown at them by their employers or their public. Not so much by daddy.

- Timothy Noah

October 20, 2011 at 3:16pm

Good luck engaging that one, Tim. Baseless assertions are his stock and trade. And once backed into a corner, he simply disappears for a while. We'll be lucky not to see one of his plaigarized posts attempting to support his argument before he goes dark.
An excellent takedown on McArdle. I enjoy reading thoughtful and thorough rebuttals to all of the drivel that comes out of their media machine.
Although, I have to wonder if she really is this dumb, or just prostituting her writing for the conservatives because they pay better.

- GSpinks

October 20, 2011 at 4:44pm

McArdle isn't an economist; she took a couple of MBA economics courses (which are not the same as those taken by economics grad students). She's actually a good writer, and is an expert on thirty somethings with liberal arts degrees from our best universities. It's just that she wants to be taken seriously and has chosen a subject, economics, that is very serious. Okay, so McArdle is not self-aware, an affliction from which we all suffer. But jeepers, what is The Atlantic thinking! Do I get a platform at The Atlantic because I want to be taken seriously? How about liberalref? He wants to be taken seriously. Does he get a platform at The Atlantic? Everybody gets a trophy in little league, but this isn't little league.

- rayward

October 20, 2011 at 4:53pm

Interesting measure of financial well-being, Mr. Rat. Let's try a comparison: Person A: Makes $1 mil / year, blows most of it on a laundress, cook, masseuse, tailor and travelling the world. Has $1K left at end of year. Person B: Makes $30K / year, lives extraordinarily frugally and has $2K at end of year. According to Mr. Rat, Person B is financially better off. Perhaps... if, say, they both lose their jobs at the end of the year, Person B has more assets. But I'm pretty sure Person B would happily trade places with Person A.

- Fishpeddler

October 20, 2011 at 4:54pm

Take a look at those Scheiber/McArdle bloggingsheads from several years ago. At times I thought Scheiber's eyebrows were going to merge with the hair on his head.

- rayward

October 20, 2011 at 4:57pm

If anyone has any interest, John Cassidy of 'The New Yorker' has a phenomenal book on the failures of libertarian economic theory 'How Markets Fail: The Logic of Economic Calamities.' Hayek, the U. of Chicago boys, Greenspan, what Krugman (but not Cassidy calls) "the freshwater schools" and other fantasists are taken to task in what's a really interesting and informative work. Or rather they've been taken to task by history and Cassidy documents the sorry tale. Cassidy is operating on much too high a plane to address the likes of McArdle, but, jeez, if you want to read why and how so much of what McArdle believes in with pubescent ardor has been brutally refuted by actual events (and basic human nature) it may be the key work. Alas, as Chatiless points out, as long as there are rightwing billionaires funding the likes of Cato and The Washington Examiner there will be forums for McArdle, Julian Sanchez, Will Wilkinson and other naive libertarians who act as stooges for the Republicans and big money. The fact that so many of these libertarian children (Wilkinson, Sanchez, etc.) are paid to celebrate a 21st free market they largely avoid themselves (through a system of feudal patronage more characteristic of the 17th century: billionaires fund these libertarian kids at a loss to sing the praises of the very market economy the kids avoid having to fully function in by working for money-losing Republican propaganda outlets) is just one more killer irony the kids at Cato, Reason, the Washington Examiner and so on fail to get.

- mtinora@me.com

October 20, 2011 at 5:05pm

Excellent post by Noah. But I think it argues on ground favorable to the right. Income (and wealth) inequality are important and significant, but they are outcomes of the lack of opportunity and restrictions on labor. That's why education and the decline of the labor movement and unions is such and important part of the tale. I'd love to see liberals go beyond simply talking about growing inequality and start talking about why we have it: because we have systematically given powerful private corporations big advantages over the institutions that protect and support the middle class. We simply don't have an equal-opportunity society any more.

- polcereal

October 20, 2011 at 5:12pm

This is a red letter day. The Rat was engaged by the author of one the posts he disparaged ... the first time I've seen it happen. Tim, nice, objective response. Most of us are a lot ruder to the rat. Good post, too. I read the McArdle post, she's particularly poisonous because she tries to appear so even handed.

- NR409654

October 20, 2011 at 9:17pm

I was sitting around thinking, "at least he wrote his own sentences this time" and then I checked this: "When you count all wealth, not just income, inequality has not gotten worse." You might take a look at this item from 10/19 (yesterday): http://www.realclearmarkets.com/articles/2011/10/19/busting_the_1_vs_99_inequality_myth_99318-2.html

- mldarby

October 20, 2011 at 10:23pm

Thanks Tim. I saw her article this morning and almost threw up when I saw that graph. So typical of her analytic approach -- grab the only data points that fit her thesis and then extrapolate wildly. You are a worthy successor to Mr. Chait.

- aharris06

October 20, 2011 at 11:25pm

I like McArdle's column though I don't always agree with her. She brings a useful perspective that deserves a listen, especially by those on the left who imagine that what we really need is a strong State enforcing "equality". I deplore the absurd trend in executive compensation and Wall Street tomfoolery, but the sad fact is that income inequality has always been and will likely always be a feature of a healthy, growing economy. The alternative, when the State works to create equality of outcomes rather than equality of opportunity, has been a catastrophic, at times genocidal, failure everywhere it's been tried. And please, can we stop claiming high marginal tax rates and relative income equality of the post-WWII decades produced high GDP growth rather than the fact that all of our international competition had been reduced to ruin by the war while our industry was untouched and boosted by epic production increases?

- Robert Powell

October 21, 2011 at 6:57am

"Nor do we want to spend years trying to cure cancer, only to learn that the financial crisis fixed it for us." That is a good line. Sorry that you had to inherit Mr._Rationale. He will always violate two rules of posting etiquette: (1) primarily, the post is an insult; and (2) Secondarily, the defective information provided doesn't lend itself to intelligent discourse. The rest of us only violate those rules occasionally.

- Nusholtz

October 21, 2011 at 9:03am

Grimes, I second your recommendation of How Markets Fail. Absolutely fantastic book.

- Fishpeddler

October 21, 2011 at 9:19am

Nush, kudos for the correct use of "secondarily". This is not intended to condescend to you, but rather to rant about all the times I hear the word being used in place of "secondly".

- NR409654

October 21, 2011 at 10:16am

Grimes, you marred your excellent first post by making another one. Are you not aware that Will Wilkinson has been calling himself a liberaltarian for years now, hoping as he does to make common cause with liberals rather than conservatives? I think that this is a doomed quest but it hardly makes him a stooge of the Republicans. And reportedly, both Wilkinson and Brink Lindsey ruffed Koch feathers when they were at CATO because of their liberaltarianism and they are no longer there. Before you condemn freshwater macro as a flat-earth type concept, you may wish to know that a fm scholar, Christopher Sims, co-won the Nobel Prize in economics this year. You term Milton Friedman a "fantasist" and yet, someone you quote, Paul Krugman, wrote a paean to Friedman in The New York Review of Books a few years back, lauding him for making not one but two huge breakthroughs in economics. And as ever, reality is always more complex than the ideologues would have it. There are economists who draw from both freshwater and saltwater economics, often enough. And the sainted Krugman isn't right all of the time on everything. I think that he is on shaky ground when he pronounces that we are in a liquidity trap. John Maynard Keynes said that he believed that he never saw a real liquidity trap, not even during the Great Depression. Business profits have returned to pre-recession levels, and consumer demand, though still anemic, is above what one would expect from an lt. A number of you people write a though the default position of liberal economics has always been the gold standard. On the contraty, a couple of generations ago, liberal economics was redolent with statist fantasies that have just about melted away now. Friedman and Friedrich August Hayek taught us a lot about the superiority of markets. They then went too far in their turn, but that is an occupational hazard that many scholars succumb to. The Keynesian IS-LM models don't stand up very well at times, either. Also, according to Keynesian received wisdom, Ireland with its severe retrenchment should be doing far worse economically than it is. So here is a heterodox thought: maybe we can learn from various sources, huh? Just maybe. Further, I think that John Cassidy, whom I have read for many years and whom I enjoy, is perhaps not always the best guide to economics. And lastly, your slam on Julian Sanchez is really unfair. He is a great writer and thinker (perhaps even exceeding your talents) and though I disagree with him frequently, he is always worth reading and I frequently send his posts to friends. He is not a stooge for anyone. I got a lovely email reply from him earlier this year, when he was at the beach on vacation, at that.

- liberalref

October 21, 2011 at 3:03pm

Libref, Um, no. 1) For starters, here's Krugman, himself: http://krugman.blogs.nytimes.com/2010/03/03/fantasies-of-the-chicago-boys/ You're way off. 2) Re: "freshwater schools": Here's the Times from 1988: http://www.nytimes.com/1988/07/23/business/fresh-water-economists-gain.html It's a pretty well established term (already in the Times in 1988) for a particular take on economics, one that gave us Megan McArdle among other things. One that's currently largely in disgrace. You can Google countless uses of this term from various people across the spectrum used in the sense I did. 3) Wilkinson is another libertarian who believes the standards of the working-class in America are so high compared to the rest of the world that they have nothing to complain about. I stand by my comments about Julian Sanchez who's currently employed at the Koch brothers' Cato Institute. He - like Wilkinson and McArdle (who's older and has less of an excuse) - maintains a child's view of markets, free will, the social effects of theory played out in actual communities, etc. Though he can be strong on his smart-phone and other tech toys. Still, Sanchez is paid to be a stooge for big money - just as Wilkinson was. Look, the Koch brothers aren't currently Sanchez a salary because they dream of the day when lesbians will legally be able to smoke crack at their weddings. They're paying their libertarians to be fronts for the brutal economic side of agenda. Again - in fairness to Sanchez and Wilkinson - they come across as children with very little experience of human nature or actual life (well, outside of graphic novels, superhero movies and undergrad political theory). Alas, naive leftists in their twenties just out of college find it hard to build careers spouting policy as they're not founded by billionaires the way these childlike libertarian stooges were in the rah-rah years. And, of course, there is the great irony that these champions of 21st century free markets often don't work for companies that, you know, actually have to make a profit in the 21st century. 4) I'm not sure how you can like John Cassidy and not really be interested in his take on economics as that's what he writes about. Perhaps he has a Sonic Youth blog I'm unaware of. In which case, I'll concede you that one point.

- mtinora@me.com

October 21, 2011 at 4:42pm

Tim, what would be acceptable to you w/r/t income inequality? Top one percent taking 1%? 10%?

- travis

October 21, 2011 at 5:26pm

Great refutation, Grimes. Um, no what? Again, you made my very point, quoting from the Gospel According to St. Krugman. With your rhetorical talents, you should join the Republican field of presidential candidates.

- liberalref

October 21, 2011 at 7:34pm

RP: "The alternative, when the State works to create equality of outcomes rather than equality of opportunity" The state has actively been bringing us away from equality of opportunity. You show me when we have people in poor households going to public schools that do just as well as (or better than) public schools that rich kids go to and I'll say we're dealing with equality of opportunity. As for now, you're talking about theoretical equality before the law, and even that is made a mockery by our politics and justice system.

- chaitless

October 21, 2011 at 11:49pm

Libref, I don't think Krugman is right all the time. You made a specific point about Krugman's attitude towards the U. of Chicago guys (and the use of the word "fantasist") and I gave you a link that clearly refuted your very point. It doesn't get much clearer than that. What's more, I was originally talking about John Cassidy's book, which, um, you haven't read. That's what my post was about, remember? My mention of the U. of Chicago guys was in reference to Cassidy's book 'How Markets Fail'. Cassidy - in said book you haven't read - goes into depth on Chile. So I gave you a link where Krugman talks about those very same people and the same issue (Pinochet's Chile, disgraceful support of) that Cassidy discusses in the book. The book I was posting about - and which you ignorantly jumped on. The link shows that you were wrong and that Krugman pretty much agrees with Cassidy (in the book you haven't read.) I appreciate your complimenting my rhetorical skills, but, jeez, you don't have to be Cicero when your opponent is simply talking out his ass and can be refuted with a thirty second Google search followed by a link. (Good Roman that he was, Cicero would - well, I'd like to think - forgive me that colloquial vulgarity.) My other arguments all stand. Especially about the differences between actual economists, actual journalists and simple shills (of the kind who appear on Bloggingheads all too often) who are hired in their twenties by right-wing foundations like Cato to spout their undergrad libertarian view of the world. You're a genuinely smart guy, libref: you should think about why you're aware via the blogosphere of all these young advocates of libertarian policies - no minimum wage, totally totally open borders, legal crack, little or no regulation - that less than 0.5% of the population supports. Advocates with no books written, no real history of reporting, no great knowledge of economics. It's because they're hired stooges (via Cato, the Washington Examiner, Reason, whatever) for big right-wing money. (I apologize to everyone else on this thread that I lacked the maturity to, you know, just let this go. I think it was the oh so patronizing tone that drew me back. And - again - like wise Fishpeddler says Cassidy's 'How Markets Fail' is fantastic. Well worth checking out.)

- mtinora@me.com

October 22, 2011 at 2:47pm

RP, I think this is a bit of a strawman: "And please, can we stop claiming high marginal tax rates and relative income equality of the post-WWII decades produced high GDP growth rather than the fact that all of our international competition had been reduced to ruin by the war while our industry was untouched and boosted by epic production increases?" The point is not that high marginal rates on upper incomes makes the economy grow well, but more than what it didn't do. We have had a steady propaganda drumbeat, that any raise in high income marginal rates will cause the economy to crash, will cause the deficit to rise, will cause lack of efforts from "job creators," etc. The point of looking at a confiscatory 91% top marginal rate in the 1950s is to show that even with that the economy didn't implode as supply-siders tell us it should have. But we don't have to go back to the 1950s. Look at what we were told in 1993. I am old enough to remember the wailing and gnashing of teeth from the right about the far more modest, relative to the 1950s rises, in marginal rates, and the predicitons what it would do. This is all brought up because in a 2 party system, the one party has as its only economic idea that taxes can never rise on "job creators" or the economy would crash. I don't think it wrong or misguided to point out how historically inaccurate that is.

- MikeB.

October 23, 2011 at 10:01am

Nu, You forgot Rat. rule #3 - "Where possible he will cut and paste things and pass it off as his own writing. When called in this 'parasitic' behavior, he will always ignore it."

- MikeB.

October 23, 2011 at 10:07am

Fair enough MikeB. All I'm saying is that the economy is a terribly complicated machine, and everyone tries to pick a point or two and make a grand conclusion. I'm not responsible for hacks who claim that any increase in the marginal rates will crash the economy. But hardly anyone paid the top rate in the '50's as they still don't today, and even if they did it would have been hard to implode the sort of economic context we had in the 50's. I'm just here to deplore unwarranted conclusions drawn from facts taken out of context. --chaitless: I don't disagree. We should be working toward a society that reinforces equality of opportunity, and I think we'll get there sooner if we don't get seduced by equality of outcome policies.

- Robert Powell

October 23, 2011 at 12:53pm

Noah-nothing -- you really are clueless. Like most of the moonbats here. You write: "I don't actually know much about wealth because I don't think it's where the action is. Hasn't been since we all stopped being farmers. Income is what sustains us. Wealth is relevant only inasmuch as it creates income" Hard to respond to such ignorance. Like much of the drivel here it shows a fundamental misunderstanding of basic economics. Wealth is the difference between your assets and liabilities. Your net worth. You can make $150K a year but have a negative net worth; your mortgage, credit card, and car payments take all disposable income; upside down on mortgage -- this is bad. However, you can make $35K, but have a positive net worth over $1M -- this is good and describes many successfully retired folks. Net worth/wealth is always the better indicator of financial health. I would advise you to speak to a financial advisor (get a recommendation from trusted friend) or I can recommend a book for you. Given your age and early stages of senility, to not understand the difference between wealth and income is a big problem.

- mr_rationale

October 27, 2011 at 11:01am

Noah-nothing: Trying doing some basic research into a topic before opining... Survey of Consumer Finances (SCF) done by Federal Reserve a good start. Net Worth/Wealth is really important when trying to understand financial health.

- mr_rationale

October 27, 2011 at 11:09am