The New Republic

Your book, Mr. Noah, is also available at Barnes&Noble.

- Doug12

January 13, 2012 at 6:15pm

he referred to New York Times reporter Jason DeParle as "Jason DeParla," even though DeParle's wife I am curious, just how do you know how DeParle pronounces his own name? Do you know he pronounces it De Par Lay in the french manner? or is it De Parl? Or De Par lee? I have to be honest I would probably pronounce it DeParla if I was not sure how to say it. As to income inequality, I am going to retire in China where my Social Security and my savings should go pretty far, I firmly believe that income inequality is how most wealthy Republicans gauge their own superiority over the great unwashed masses.

- blackton

January 13, 2012 at 7:17pm

Alan Krueger looks as though he could be John Glover Roberts' younger brother. George Francis Will wrote a terrible column on income inequality recently. I recall him denying that such inequality was increasing in the later 1990s, even though it was evident that it was at that time. Now he acknowledges the reality of income inequality, but he alleges that liberals make it worse with their statist policies. As I said, it was a horrible piece.

- liberalref

January 13, 2012 at 9:53pm

I'm not surprised by this news. It's common sense actually. The great American miracle, the ability to transcend class, is not a feature of feudal or even Victorian cultures, aristocracies, oligarchies, or fascist states, where there are a few wealthy people and a great many poor people (ie, inequality). Rather we became a huge economy - the "land of opportunity," with some upward mobility because the majority of Americans could share in the economy. And, this was part of the foundational ethos of our culture - the idea of essential equality and inherent rights. Indeed compare the US with Britain and its "peerage," which inherits not only wealth but power and representation in government: inequality personified, which created poverty, hunger and disease that was mitigated only by British imperialism and the enslavement not only of British workers at home and on ships, but of Africans and others abroad. America rebelled against this very idea, that of entrenched position, the idea that some are inherently better than others. The American Revolution was nothing if not "class warfare," striking a huge blow against the idea of inequality - unless of course you were a slave or an indigenous person, which are big problems to this day; our original sins. Regardless I agree, this is a great place to start. We must have the courage to confront issues of class and money in America despite the fact that we are "envious" simply by mentioning these ideas in public. And, thank you Mr. Noah for pointing out the comments by Romney, who is beginning to strike me as a despicable person.

- Sophia

January 14, 2012 at 3:04am

Will's point was a good one liberalref--looking for government to aid the weak rather than the strong is nearly always a vain hope. People who can afford lobbyists, tax lawyers, and campaign contributions nearly always do much better at getting goodies out of The State while everyone else has to pay for them. He used sugar subsidies as an example: millions every year goes to wealthy farmers, and the cost in higher prices is split between everyone else so it's not particularly noticable. Some inequality is inevitable in a healthy, growing economy because people are unequal in their skills, energy, and circumstances. The communists proved that while government is very poor at distributing wealth, it is marvelously efficient at distributing poverty. Within limits, some inequality is not only inevitable but a Good Thing. What worries me more is the relative decline in social mobility.

- Robert Powell

January 14, 2012 at 7:17am

Two points. Absent some intervention, an increase in income inequality, compounded by a (corollarial) decrease in upward mobility, should accelerate over time; the next generation may experience a far greater than 25% decrease in upward mobility. My second point derives from the first: absent some intervention. Income inequality in 1928 was about the same as in 2008, but fell precipitously following the 1929 financial collapse, leading to a long period of relatively flat income inequality during the epoch of the rise of the middle class and widely-shared robust economic growth. In other words, the 1929 financial collapse was "some intervention", suggesting that income inequality, when it reaches a certain level, is self-correcting. In this regard, the steep drop in income inequality following the 1929 financial collapse is almost mirrored by the steep rise in income inequality leading up to the 2008 financial collapse. As in the period following the 1929 financial collapse, income inequality did drop following the 2008 financial collapse, but no where near the steep drop following the 1929 financial collapse, and is already beginning to rise again. Does this mean that, contrary to my prior statement, income inequality is not self-correcting? Here again, I would repeat "absent some intervention". In the period following the 1929 financial collapse, nobody held nets below the windows in Wall Street highrises, whereas in 2009, the government paid for and manned the nets. I suspect that, in the years to come, economists will look back at the two major financial crises of the past 100 years and conclude that those nets prevented the self-correction.

- rayward

January 14, 2012 at 8:32am

Of course, if excessive income inequality is self-correcting, then we are headed for another financial collapse, this one likely far deeper and more damaging than the last. Absent some intervention.

- rayward

January 14, 2012 at 8:45am

Neglecting the bottom half of our population will cost us. In sports, offense is options. The more options, the harder the job is to defend. In evolution, the more variety in a species, the greater the likelihood of long term survival. In science, results are more likely with basic research into a variety of areas -- rather than just trying to research a cure for a specific disease. If we neglect the resource of our population, long term, we will become inferior to the societies that pay attention to that resource.

- Nusholtz

January 14, 2012 at 10:21am

G. Will's point was not a good one. And sugar subsidies, hell. Take farm subsidies overall. They benefit the wealthiest agribusinesses the most. But Will doesn't seem to comprehend that the state is not one thing, and does not just do one thing. Farm subsidies we have had with us forever, but tax preferences for the ultrawealthy go in and out of fashion. So, RP, are you naive enough to think that if we pare the state down to the libertarian's dream, that of a night watchman, that income inequality would greatly decrease? I have got some plots on the moon I would like to try to sell to you, if you believe that.

- liberalref

January 14, 2012 at 11:52am

Not clear from the comments that all of you recognize that by a variety of measures, the US now has more income inequality and less social mobility that about 20 other "advanced" democracies (including Britain. Gates and Dell are much wealthier than QE2). And you are seriously deluded if you think either BHO's weak policies-- much less perverse Repub policies-- are going to reverse or correct our continuous decline for decades.

- drofnats1

January 14, 2012 at 11:57am

You are certainly the character, dro. Of course I know these data. I talk about then frequently. Last year I read the superb book, The Haves and the Have-Nots: A Short and Idiosyncratic History of Global Inequality by Branko Milanovic, who is the lead researcher for the World Bank at the unit on poverty and inequality. Here is a shocker - he knows even more than you do. That is merely one thing that I took in on this subject in 2011. Why wouldn't most of us know the data? We're liberals, except for the occasional reactionary here. Do you think that you are the only one here who knows things like this? And a lot of what you "know" isn't empirical at all. You constantly entertain the fantasy that the president is like a dictator. In the real world, his power is hedged about by many factors. A couple of years ago, I read the superb study by the presidential scholar (note: scholar, not an opinionated know-nothing commenter) George C. Edwards III, On Deaf Ears: The Limits of the Bully Pulpit. This book would make your head explode, dro. Among many other things, Edwards demonstrates how, contrary to popular opinion, Ronald Reagan was not able to lay out his visions and automatically bend people to his will. It is very difficult to move public opinion in directions that it does not want to go. But again, that is in the real world. In the fantasist's mind, wonders are worked all of the time. Such naivete is to be expected in, say a 24- year-old, an age that I thought you likely approximated, but something you wrote last year caused me to realize that you must have been born about the mid-20th century, as I was, if not even sooner. If I read the relevant clue correctly, all that come to mind is the old saw about old dogs and new tricks. You are the exact incarnation of a remark that my college philosophy professor (I met him in 1974 when I took classes from him, and we have been friends ever since) made just days ago about ideologues. Tom P. is a staunch Democrat; he loathes the Republican Party, and nothing will get him to vote for any Republican for any office. His political philosophy is most definitely on the left - we talk about income inequality constantly - but one thing he certainly is not is an ideologue. You are the consummate ideologue, dro. You "know" all of the answers and you repeatedly confuse your fantasies with the actual wold. In a phone conversation that we had last week, Tom asked rhetorically, "Can't the left-wing ideologues see that they are mirror images of the right-wing ones, like Grover Norquist?" I answered, no, they cannot, and Tom well knows that. A rhetorical question, as I mentioned. Can you say "arrested development," dro?

- liberalref

January 14, 2012 at 2:06pm

Indeed, drofnats1, we can read. That's why we are concerned. We realize the US is now on a par with Rwanda or worse, and I in particular was not speaking of today's Britain you know, but of Victoria's, or perhaps you haven't read Dickens? As for Obama, read Blow, Collins and Krugman in the NYT; I think he does want personally to be wealthy and that in and of itself is not a crime. And, his policies have not been strong enough, Bernie Sanders is much more my idea of a leader. BUT to compare him to the GOP is just wrong-headed. And now a moment to say "thanks a lot" to those of you who voted for Nader, based on the totally erroneous idea that GOP and Democrats are the same. No, we aren't. That said, once the balance is tipped and a globalized cadre of wealthy and powerful people whose interests have nothing to do with ours or with those of America replaces a democratic nation state (ours) we the people are not truly governing ourselves. Our own work and efforts, even our votes, no longer count. We are either in the 1% or we are guilty of class warfare and envy, apparently. This started under Reagan, it's only now truly revealing itself. Read Durrell's "Tunc." He got it, I thought the book was both ravishing and crazy, but the crazy part, no, I think he was right. You are either in, or you are out (imagine Heidi Klum here, I'm trying to see the humor in the situation:)

- Sophia

January 14, 2012 at 3:03pm

Giovanni down the block told me this morning he was let go, for the second time, 2 weeks ago. He supervises the laying of data cable. We live in Manhattan. Something about outsourcing to East Europe or replacing him with a younger worker. He's the last oldtimer on our slowly-gentrifying block. He lives between a lawyer and a banker who have earned "telephone numbers" for quite a while. But his Mercedes was bought used. He has a house in the Poconos and another in the old country in Europe. His townhouse here has a market value of about $4mm. He rents out one floor for a very good rent. His old job gave him 50k severance after 7.5 years and he found a new one within 2 weeks. He, and his son, who is doing quite all right, and his grandchildren are very unlikely to ever have the life options of the professionals he lives among. It is not trivial to develop that kind of social capital. But he is doing very well indeed just because he is living among extremely talented and productive people. So is the chef he is renting to who buys $5k pieces of home kitchen equipment as if they were candy. Now would Giovanni be better off if there were fewer super-successful people in Manhattan? Obviously not. No one is holding him down, but acquiring the social capital to be a successful professional or businessperson or academic is not easy to do. Still it is undoubtedly better to be in a lower percentile in a richer polis, even if the ladder is stretched by the achievements of those in the top. I've seen three young people given extraordinary opportunities to bring themselves into the elite by people willing to help with their education, one Jamaican, one Dominican, and my godson, the son of musicians. In each case it did not work, they just could not imagine themselves rising in socioeconomic class and doing what was needed to perform. It was not through lack of ability, but rather through lack of conditioning over many years to understand the world and how to succeed in it. If highly motivated extraordinary people cannot help targeted children who are near to them, but not their own, what can government do? It has to be done either by the parents or the exceptional child willing to do the painful work of changing in order to enter the elite. But even those who can't make that change benefit enormously from living among other people who are able to do so, as long as they are productive and emotionally capable.

- homeros

January 14, 2012 at 6:36pm

Ditto homeros. I'm as concerned about the trend away from a more equitable distribution of opportunity as anyone here, but my experience indicates that most of you vastly over-rate the ability of the goverment to correct this. Is there a role for the state here? Of course there is. We need decent public education, rule of law, infrastructure, national defense, and quite a number of other things practically available only from the government. But there are an awful lot of things the government does that don't help at all, like spending trainloads of money to maroon poor kids in failing schools, massive subsidies to all kinds of folks who don't need them (yes libref, virtually ALL subsidies, not just sugar). Anyone who thinks that the wealthy and powerful don't get a better shake from the State than the rest of us are the one's who are naive. Otherwise why all those expensive lobbyists? Mischaracterizing someone's argument or insisting that the whole thing is invalid because if it was taken to a ridiculous extreme it wouldn't work is not a good way to come to an understanding either of the problem, or possible solutions available in places one may be uncomfortable about looking.

- Robert Powell

January 15, 2012 at 10:13am

Timothy, who the hell cares how a news reporter's name is actually pronounced? Or that this mistake is even more glaring given the fact he's married to a colleague of Kreuger's at White House? What does that have to do with income inequality? All you're showing is how petty and insecure you are. Okay, he's really more famous than you. Take a deep breath and get over it. We all love you for the wonk you are. Need manly hug, Big Guy?

- rewiredhogdog

January 15, 2012 at 11:30am

OMG, even for TNR commenters, the pop psychology is egregious. Because Timothy writes about the mispronunciation of a name does not mean that he is insecure. Yet again, I am reminded how difficult it is for the human mind to travel down the roads of deduction and induction.

- liberalref

January 15, 2012 at 12:25pm

Re: 'hog & libref--way to stay on topic guys!

- Robert Powell

January 15, 2012 at 1:40pm

Wow, I get included too. That is like a scenario where a guy gets on a bus and jumps the bus driver, and a passenger leaps up and pulls the assailant off of the driver. Then a genius seated nearby rips into both the assailant and the passenger who stopped the assault, for causing a melee.

- liberalref

January 15, 2012 at 1:56pm

Then the bus careens through the guardrail and into the reservoir....

- Robert Powell

January 16, 2012 at 3:46am

Back to the point -- Thanks for the great speech!

- Wonderland

January 16, 2012 at 10:33am

Noah-nothing -- underlying premises wrong again. Incredibly wrong. Amazingly wrong. 1. US has the highest rate of mobility among large developed nations. Over 80% report higher incomes and quality of life than parents. Of course I am speaking of absolute mobility -- which is far more important and relevant than relative mobility. 2. Inequality has been increasing since the Neolithic Revolution about 5,000 BC ---- -it is called return to skills, basic Econ principle. For example, the village blacksmith made more than the villager ditch digger. Prove me wrong -- I dare you. Prove that relative inequality is more relevant than absolute. Prove that income inequality is not related to the skill set an individual possesses. Facts >> musings of liberal moonbats

- mr_rationale

January 16, 2012 at 3:14pm

I'm with you part of the way mr. rat, but the latest figures I've seen show actual social mobility in the US below many comparable European countries (at least somewhat comparable). This is a Big Deal in my view. How are you distinguishing between absolute and relative mobility?

- Robert Powell

January 16, 2012 at 3:28pm

No-facts constitute the musings of the Heritage moonbat. Rationale's creator never provides any substantiating figures in defense of her contentions, only contextless percentages, and that, only once in a while. And left or right, those with weak arguments always resort to argumentum ad hominen, as rationale's puppeteer frequently does. Mr. Tyler Cowen, the libertarian economist, and co-blogger at Marginal Revolution, is what? - about ten billion times smarter than rat. He is hugely worth reading, unlike rat. He is constantly empirical, he is respectful of opinions that are the opposite of his own (imagine the Heritage staffer doing that!). Tyler is a higher human type and the Hs isn't fit to tie his shoes. Ideology has also been on the rise since the Neolithic era, and the Hs is a prime example of this. Left or right, Michael Moore or rat's way, they are no good. The best evidence that the Hs is insecure consists of two things: bragging about how much money she makes (this has declined, as of late) and the fact that the Hs appears here, tosses around more ad hominen nonsense, and then runs away like the lily-livered coward that she is.

- liberalref

January 16, 2012 at 4:40pm

1940-1980, our period of greatest growth in per capita GDP, at least since 1900, coincided quite precisely with the lowest income inequality since 1900. The growth spurt was triggered by the wage growth of the early WWII years. That is not a coincidence. Growth is driven by demand and technical change. Demand is, in turn, driven by income equality, the ability of many people to spend. Technical change is driven by wage pressure. The increasingly unequal distribution of income since the flat-earth economic religion, variously called supply-side economics or Reagonomics, became all the rage, combined with free-trade fundamentalism, is the reason why growth has slowed. Supply-side economics, the idea that you stimulate growth be increasing returns to investment, is simply wrong. It is backwards. The notion that unrestricted trade benefits everyone is likewise wrong. It is contributing to the split between haves, in non-tradable sectors or with skills in world demand, and have-nots, those who must compete against workers elsewhere whose wages are 10% of those here. Together, these factors are driving income inequality, asset bubbles, the fragility of the economy, and slackness. Any one of those is more than enough reason to worry. But to worry, you have to have a sense of economic reality. That wack-jobs of the right, including the economic right, are oblivious to reality. Hence, they call for more of the very same policies that have created a mess. If we want a robust economy, the very first thing we ought to do is create a significantly more progressive tax system. If it only got us back to the after-tax income distribution of 1980 -- compensating for the growth in gross income inequality since that date -- that would be a huge gain for this country in every way.

- roidubouloi

January 16, 2012 at 5:13pm

I should have noted that we have exacerbated the problem by making our tax structure less progressive as gross income has grown more unequal in response to the trade, fiscal, and anti-labor policies of government, along with macro factors not directly attributable to government. There is nothing at all to preclude us from allowing the highest winners to win, in the interests of innovation and entrepreneurship, but then using the tax system to restrict the differences in outcome so that income distribution overall remains near the levels of 1940 to 1980.

- roidubouloi

January 16, 2012 at 5:57pm

To invoke Tyler Cowen again, he correctly notes that the drivers of economic growth are imperfectly understood. The ideologues know it all, though. And the economist, Mr. Jagdish Bhagwati, who is one of the leading experts in the world on trade, has written that free trade is way over-blamed for job losses. Bhagwati is even smarter than roid is, believe it or not. Seriously people, who would you trust? The choice for me certainly is not hard. And remember, too, that during the great years of economic growth and relative income equality in the later 1960s, prosperity was being purchased by LBJ through his guns-and-butter policies, with the piper to pay down the road. The roids of the world never deal with inconvenient facts such as these. Those ideologues are superb at cherry-picking data, which is to say, confirmation bias. Further, in those great years when blue-collar workers hauled in good salaries at the major US car companies, terrible cars were being turned out. So Eden wasn't exactly Eden, after all.

- liberalref

January 16, 2012 at 6:07pm

Tyler Cowen? Who cares? I said nothing at all about the relationship between free trade and job loss. I commented on the relationship between free trade and income inequality. Some of us finding even simple concepts in economics challenging. The period of high income equality and coincident high growth lasted for forty years. That is hardly cherry-picking the data. As well, as rayward noted above, the two biggest crashes in the last century plus came at the peak of income inequality. Some of us don't deal with facts at all, inconvenient or otherwise, and have no idea how to relate economic facts to economic explanations. The relationship between income equality and growth is not an all-powerful explanation for everything, such as car quality, inflation, etc. Nor is it intended to be. It helps to be able to stick to the subject. One doesn't establish purported non-ideological bona fides by simply talking about other matters. One only demonstrates one's inability to contribute meaningfully to the subject at hand. Anyone know one?

- roidubouloi

January 16, 2012 at 6:44pm

You know, lib, I had passed by your extended comment in response to drofnats. Now I have gone back and read it. You really are a perfect asshole. Is it because you are so crushingly ignorant of the subject matter that you cannot make a comment about the subject, but must make other posters your target? What a pompous fucking moron you are. Gross ignorance, extreme stupidity, and incredible self-importance all wrapped up in one nauseating package of crap.

- roidubouloi

January 16, 2012 at 7:24pm

Who cares? Spoken like a true ideologue.Tyler Cowen is so much smarter than you are that there is no metric to adequately capture the difference. Last year, on March 9th, he wrote a superb post on the common mistakes of right-wing and market-oriented economists that is better than anything I have seen by left-wing economists and/or bloggers. I challenge you to try to top Tyler's post and put up the results here. That would be good for a huge laugh. I notice you didn't say a word about J. Bhagwati, though. I am not at all surprised. As usual, you didn't deal with my points, you merely changed the subject and then projected that on to me. As I have written before here, and recently too, you are a master of Freudian projection. Also, any sentient person with even average cognitive abilities would take your second paragraph of your first post as implying job losses from free trade. Further, you definition of a meaningful contribution is someone who agrees with you. How original and how noble. Speaking of mcs, if you ever debated Bhagwati it would be like LeBron Raymone James playing a mediocre high school basketball player one-on-one. As I have written numerous times before, you are the consummate Enlightenment rationalist. You hilariously wrote of my phrase that I had no idea what it meant, and that I only liked it because it sounded good, even though I gave a precise definition of the term. Once again, it means that you have a misplaced confidence in the powers of rationality, that is to say, in your self-assuredness that your mental templates will map on to the world quite well. You would not begin to be able to comprehend Edmund Burke or Michael Oakeshott, with their rich understandings of the anfractuous place that is the world. Not that you would know this, but there is still a great deal of debate about the causes an consequences of the Great Depression among professional economists (I know you consider yourself as practically one of this breed, but you manifestly are not). For instance, the stickiness of wages in the early-to-mid 1930s in the US is still baffling. And even if the GD were better understood than it is, there is no guarantee that we could simply study such scholarship and then design a Pareto-optimal economy. Only an Enlightenment rationalist would think so. Also, those who want to feign economic knowledge should at least spell "Reaganomics" correctly. Here is a link to Tyler's post: http://marginalrevolution.com/marginalrevolution/2011/03/fallacies-committed-by-right-wing-and-market-oriented-economists.html So , now over to the Andrew Breitbart of the left, the authoritarian roid, who will probably say that I best shut up, once again.

- liberalref

January 16, 2012 at 7:55pm

Ah, there is the foul-mouthed roid again. The other day I wondered how long it would be until he appeared. Not long was my surmise, and was I right. I like that to you the know-it-alls aren't pompous, it is those of us who dwell in John Keats' negative capability who are. Last year dro repeatedly called me a Blue Dog, I think that at least you are smart enough (maybe) to know that I am not at all one of that breed. So he told repeated lies about me, and yet you assail me. Well, the pompous know-it-alls have to stick together, right?

- liberalref

January 16, 2012 at 8:02pm

Nah, lib. Definitely don't shut up. Keep talking. The more you talk, the more obvious it is what fucking asshole you are. Too stupid to understand, even when it is pointed out to you, that there is a difference between job losses, the point Bhagwati made that you referred to, and income effects. You're a jerk.

- roidubouloi

January 16, 2012 at 8:09pm

Not long at all lib-asshole because there is absolutely no point in talking to you, or about you, as if you were a civilized human being. You deserve nothing more than to be called an asshole today and every day.

- roidubouloi

January 16, 2012 at 8:11pm

No, idiot. Having to compete against workers earning a fraction of what you do lowers your wage. Anyone with even the most rudimentary understanding of economics, which does not include you, would understand that. How do you have the nerve to include yourself among the sentient?

- roidubouloi

January 16, 2012 at 8:20pm

It is too bad that the Soviet Union wound up in the ashcan of history. You probably don't know who Mikhail Andreyevich Suslov was. He was the house ideologue for the SU for many years, until his death in 1982. You would have made a perfect successor to him in the 21st century, had the SU not bit the dust on Christmas Day in 1991. Your party-line mentality, your huge abusiveness, your authoritarian qualities (?) would stand you in excellent stead. "Comrade Trotsky was a traitor!" Now, Comrade Roid, look above and note how condescending dro was to everyone out here concerning knowledge of income inequality. Sophia agreed with me. That went right by you. But of course. You are a condescending know-it-all just like dro, so it is like the ground that you walk on. You take no notice of it. I wear it as a badge of honor, being lectured on economics by someone who cannot even spell "Reaganomics" correctly. You are so pugnacious and self-righteous I wonder how anyone can stand you. If you are married, I feel really sorry for your wife.

- liberalref

January 16, 2012 at 10:04pm

You mean condescending like this, lib-asshole: "So, RP, are you naive enough to think that if we pare the state down to the libertarian's dream, that of a night watchman, that income inequality would greatly decrease? I have got some plots on the moon I would like to try to sell to you, if you believe that." You're an idiot. Complete moron. But keep talking. The more you talk, the more obvious it is what an asshole you are.

- roidubouloi

January 16, 2012 at 11:02pm

Two modest points: 1. Corelation is not causality. The "period of greatest growth of GDP" was also the period when practically the entire workforce was drafted into either industry of the military; everything factories could produce was thrown into the war effort; and later, we could sell all the crappy products we could make around the world because all of our competitors had been bombed back to the Stone Age. More income equality may have been a factor, but there were lots of others. As many economists have pointed out, a big economy is so complex any analysis should be done with profound humility. 2. All the nastiness and personal attack is obnoxious, and add's nothing useful to the discussion.

- Robert Powell

January 17, 2012 at 5:35am

All causality, as understood by human beings, is an inference from correlation. But we believe there are correct inferences and incorrect inferences. We accept an inference as correct not only because of the strength of the correlation, but because we have a convincing explanation ship of the causal relationship between the correlated observations. We do not believe, for example, that daybreak causes the sun to rise. It is not difficult to construct a convincing explanation of the relationship between growth and relative income equality: Modern production is the mass production of goods. Mass production is impossible without mass demand which can have only three possible sources, government, exports, and/or mass consumption. Mass consumption requires relative income equality. Our growth was not export-led, although the initial impetus was most certainly government spending. It is the fact that we have had a mass domestic market that accounts for our exceptional growth. As for the state of the evidence, the "period of greatest growth" was from 1940 to 1980. It was not the case that the entire workforce was drafted either into industry or the military during that period. There is also a clear inflection point at 1980, the beginning of the long-term decline in relative income equality and at the same time the decline in the rate of per capita GDP growth. Although not quite the point I think you intended to make, you are making the point that demand is what drives growth, be it demand for machines of war or consumer goods. Private investment cannot be a primary source of demand because its purpose is to provide for private consumption. Investment demand is only sustainable if there is consumption demand to sustain it. The existence of a mass US domestic market for consumer goods produced by private industry depends on workers having the money to spend. As we have slowly taken income from workers, including the middle class, and shuffled it to the high end where it cannot be consumed and cannot be invested in the absence of consumption demand for the output, we have made our economy more fragile and reduced growth. As for the coincidence of crashes and extreme income inequality, this is also finds a ready explanation. An asset bubble could actually be defined as the secular growth of asset prices above the rate of growth of income broadly because, again, it is only the spending of the bulk of the population that provides the source of revenue for most investment assets. For a time, revenues to assets can rise due to an increase in the income share of capital. But this is unsustainable as income share cannot by definition grow indefinitely and growth in share becomes more difficult as the absolute level of share rises. As there is not enough consumer income/spending to sustain and justify the asset values (exacerbated by the loss of income share) and the growth in income share for capital has to slow and stop, the bubble has to burst. It therefore bursts with income inequality at its peak because it is growth in inequality that sustained it up until the bust. Rayward's point about self-correction has merit. But if the price for the correction is depression, the price is too high. However, while it was necessary to bail out key institutions, it was completely unnecessary to bail out the owners of their capital. We could have let the owners take the hit, while sustaining the institutions themselves, as we did with GM. We saved the firm, we let the owners (including bondholders) take the bath they had earned. I argued about this here a great deal at the time, explaining how we could rescue the banks without rescuing their owners. I regard Obama's failure to do just that as his greatest policy failure by far. Let's see if your point 2 is self-correcting.

- roidubouloi

January 17, 2012 at 8:24am

On point two, I hope so. On the rest, I'm familiar with your argument and think it has considerable merit. I just have a more cautious approach to developing theories that explain Everything. For one thing, our society has undoubtedly provided a great domestic market, but the world has changed in many significant ways since 1980, and not only concerning marginal tax rates in the US. We are wealthier in almost every measurable way than we were in the Forties, Fifties, and Sixties, stats on income distribution notwithstanding. There comes a time in my view when a society can reach or at least approach a saturation point for non-essential gadgets and toys of the sort that much of our consumption has focused on. And of course, international competition to produce such stuff is a lot tougher. I'd like to see a more equitable distribution of income, and far more important in my view a more equitable distribution of opportunity and social mobility. It's far from clear to me that by simply raising taxes on high earners, although I think it's a pretty good idea for several reasons, we will adequately address the underlying causes of excessive inequality.

- Robert Powell

January 17, 2012 at 10:38am

I didn't claim that income inequality is the explanation for Everything. Nor is using the tax system to achieve significantly more equal after-tax income distribution the solution to every problem. But if income inequality is a major contributor to our economic problems, then solving 80% of that problem with means immediately available makes excellent sense. It is not, as the right likes to claim, a matter of taking money from the rich and handing it out, although there is a place for some of that too. It simply algebra. If a larger pre-tax income share is going to the highest earners, then, even with the size of government unchanged, we need more progressive taxation to maintain the after-tax income distribution (or to return it to just the level of 1980). The wealthy were hardly suffering in 1980. In the bargain we get several very beneficial social and economic outcomes. For one, when people earn more money, they are less poor. The increase in demand from a broader distribution of income will also generate additional demand and additional employment. A tight labor market induces capital labor substitution, the very technical change that leads to higher per capita output. And why not? What is the terrible downside? That the wealthy will have to make do with the same income share (of a higher GDP) than they had in 1980? We always hear from the right about how people should stop complaining because they are wealthier than the rest of the world and wealthier than at any time in history. But then what the hell are the rich whining about at the prospect of being wealthier than everyone who ever lived, just not as wealthy as they would be if they owned every single bloody thing? While the reasons for inequality and poverty may be many and complex, if everyone has a good job with a good after-tax net income, then we have solved a lot of the problem. Communities with a decent aggregate income are then much less likely to suffer from the pathologies of poverty. Gains from education become more widespread. Really, but for the class and ideological warfare being waged by the rich on everyone else, this should be a no-brainer. The right also confuses the conditions that allocate the available high-wage jobs with the conditions that create them. Being the hardest working kid in the class may properly get you the best job with Goldman Sachs, but that is just a question of who gets the job. We cannot all be doctors, lawyers, accountants, and investment bankers. Nor will everyone going to school and working like a bandit create more such jobs. The jobs are a product of the system. Who gets them is, loosely, the result of individual effort. Right now, we have a situation where we have far more college graduates than we have jobs for college graduates. Is this because they were lacking in motivation or because of macro-economic effects that are beyond their individual control but subject to a great deal of control by society as a whole using tax and fiscal policy to balance outcomes, not individually, but in the aggregate. The claim in opposition is made that we need this income inequality to created the incentives for innovation and to induce people to get the necessary education and do the work. The claim is clearly false. All the evidence that exists is to the contrary, as there was more than adequate incentive from 1940-1980. Socially mobility is also dependent on more equal income distribution because kids at the bottom can only reach so far across the gulf created by better schools, better social conditions, and ready social-network access for those best off. Yes, there are always genius kids or brilliant kids who with a sliver of opportunity will leap through the opening and achieve great things. But all of humanity cannot be above average. And if being well-above average is the condition to a good life, and a share of national income that passes that gag test, then we are destined to be a nation of a few haves and a lot of have-nots. That was not the reason this country was founded. Why should not everyone who is willing to work have the opportunity for a good job at good pay? And if the private market solution, left to itself, does not provide enough such jobs for everyone, why not raise the after-tax income at the low-end by lowering it at the high-end? It won't solve everything, it may not resolve the pre-tax distribution of income, but it would quickly solve a lot of things. That we cannot solve every social problem is not a reason to take big, and easy to implement, steps to solving a lot of them. And that may make the solution to the others a lot easier to achieve. The question of what we should spend our money on is a different problem. I think we have insufficient public investment. The solution to that is to spend more on public investment, not to try to get people to stop buying flat-screen TVs. There is an unfortunate tendency on the right to see macroeconomic issues in moral terms: "We must save more, spend less." No, unless one is talking about more public investment, which is a problem to be solved by government decision, we are not saving too little. We generate adequate capital and there is no evidence that the economy is unable to summon sufficient capital whenever an investment opportunity exists. These moral admonitions are simply directed in the wrong place because they having nothing to do with economic reality. They are an economicized version of someone's morality, that is to say, someone's morality dressed up as economics. Not the same thing.

- roidubouloi

January 17, 2012 at 12:26pm

Tim, I think the reporters in attendance at Allan Krueger's lecture didn't understand 2/3 of the stuff he was discussing, which is why it was under-reported. On the other hand, ask them about whether Michelle Obama is happy in the White House or not, and they will kill whole forests to let you know about it.

- wildboy

January 17, 2012 at 12:35pm

"...solving 80% of that problem with means immediately available makes excellent sense." Well, yeah. Obviously. Unfortunately it is far from clear that means immediately available, or even speculatively available in the medium term, could really do that. Transparently taking money from the rich and handing it out to the poor in cash is probably the most efficient way to address income inequality. I'm okay with that if it could done with a minimum of negative social consequences--no easy problem, but worth talking about. I think my basic problem with your formulation roi is that it is essentially Tzarist. It assumes that all income and wealth is "our" property, to be divided up by divinely inspired autocrats who tweak the levers and gears of a machine that they completely understand and control. That's just not the way I view the world. The state apparat that you would fund as a baseline definition of how much property we need to seize and from whom in order for our society to once again walk the sunny uplands of a scientifically planned society seems to me, to say the least, unlikely to be up to the job.

- Robert Powell

January 17, 2012 at 4:30pm

This is exactly where the rightwing economic narrative grinds to a halt, Robert, and is replaced by shrieking that anything other than what the market serves up this day is SOCIALISM! The so-called supply side claim that the inequalities in income are necessary to drive prosperity and therefore makes everyone better off, even if some are more better off, is both contradicted by sound theory and empirically false. The opposite is empirically the case -- we are more prosperous with more modest inequality -- and this too is supported by sound theory. As soon as the false claims crumble, there is nothing left of supply-side economics other than a claim which is essentially ideological and religious: The distribution achieved by the market is fundamentally just and altering it is fundamentally. This claim too has only a tenuous relationship to reality as the market is not something found in nature, but something created by people, their rules, regulations, customs, taxes. It is not a single outcome but a whole range of possible outcomes from which we are free to choose by democratic means. We were not a socialist economy in 1980. The distribution of income was achieved under a particular tax structure more progressive than the one we have today even though income was more evenly distributed. It is no more socialist to suggest that the tax structure should now be more progressive than in 1980 to offset the increased skewness of income, particularly when there is a good case that the result would be a more robust economy. The genius of the market is in allocation. But even if we assume that it correctly sorts people according to who makes the greatest contribution (far from the case although likely much better than the alternatives), we can have the best of both worlds, allowing the market to determine the outcomes, without attempting to specify them or regulate them into being, and then impose meta-rules, the tax system, to level the results in order to achieve a more just society with greater opportunity and a better standard of living for the vast majority. The only reason that I can see not to is the religious belief that markets produce just outcomes. This is like worshiping rocks or trees or idols. The market is a tool to achieve, within its capabilities, social outcomes we desire. We should decide democratically what outcomes we want within the range without being blasted by bullshit and immersed in rightwing fog that attempts to persuade us that the market outcome of the day is divinely ordained. This is barely distinguishable from the divine right of kings (and the aristocracy).

- roidubouloi

January 17, 2012 at 7:01pm

"altering it is fundamentally unjust"

- roidubouloi

January 17, 2012 at 7:02pm

"Transparently taking money from the rich and handing it out to the poor in cash is probably the most efficient way to address income inequality. I'm okay with that if it could done with a minimum of negative social consequences--no easy problem, but worth talking about. "
I don't see how that would be the most efficient method at all. It would make something of a base-line, perhaps. But it occurs to me that the government collecting taxes from the rich, and using the money to invest in its infrastructure (NTSB et alia) and well-being (DHS et alia), and thus not just handing poor people money but getting something beneficial in return, would be the most efficient use of the resources. Or am I just being silly?

- GSpinks

January 18, 2012 at 3:15pm

Doesn't seem silly to me. If we decide we need a Federal government that is 25% of the economy (roughly the case INCLUDING social security) and the top 10% of earners have 50% of total income, they could pay for the entire Federal government and have 33% of after-tax income (ignoring State and local taxes - those are regressive and hence depress the after-tax income of the bottom more than the top). 33% was the gross income share of the top 10% in 1980. As taxes were more progressive then than they are today, their after-tax income share was definitely less than 33%. Income has become so skewed to the top that charging the entire operating cost of the Federal government to the top 10% would not even get us back to 1980 after-tax income shares. But that would be a right good place to start. We could eliminate payroll and other Federal taxes entirely.

- roidubouloi

January 18, 2012 at 5:23pm

If there was any certainty, or even a fair chance, that a dollar sent to Washington would be a dollar applied to "infrastructure...and well-being", we wouldn't be in the situation that we are in today. Currently 1 in 10 Americans trust government to "do the right thing most of the time", down from about 7 in 10 a few decades ago. It is extremely unlikely that more than a tiny minority of voters would ever agree that it makes sense for the Federal government to be the final arbiter of income distribution, or in fact the prime decider in a fabulously complex 14 trillion dollar economy. I'm with the majority.

- Robert Powell

January 19, 2012 at 3:58am

How much money the government should spend is a different question from how the cost of that spending should be allocated, although those who seek to justify the extraordinary privilege of the wealthy do their utmost to confuse the two. The majority quite clearly supports virtually all of the spending in the Federal budget. In the abstract, everyone wants cuts. Sure. But as soon as you start to try to specify the cuts, then the overwhelming majority disagrees. I'm with with the majority. Most of the spending is good policy, the claimed waste, fraud, and abuse being but a small fraction (and since when have human beings been able to achieve 100% efficiency in anything, including spending money?) In addition, the best evidence is that the private sector is unable to sustain sufficient demand to drive the economy. Hence, an expanding government sector is both affordable and necessary to drive the economy. Reduced government spending does not produce wealth; it produces slackness, the failure to use available productive resources. That decreases wealth. This complete failure to understand the difference between the macro-economy, that needs spending to function, and a household is a constant feature of right-wing thinking about economics. Given that the cost of government will be allocated to the private sector somehow, whether through taxation, prices, inflation or a combination, it is pointless to insist that the Federal government not be the final arbiter of income distribution. It IS the final arbiter of income distribution. Once that reality seeps in, the only question is, how should it make the allocation? For reasons of equity, social mobility, and economic growth, stability, and performance, the current allocation leaves vastly too much money in the hands of the wealthy. As pointed out above, we could charge the top 10% the entire cost of the Federal government and they would still have a net income share greater than that in 1980, before the insanity or Reaganomics overcame us. This mal-distribution is damaging to the future of the country. It is sapping the motivation for needed public investment, which hurts our competitiveness, sapping the motivation for productive private investment by sapping private demand, and making all forms of social pathology worse by depriving all but the top 10% of the benefits of GDP growth. Access to all the things that allow us to move forward, public investment, education, healthcare, financial and retirement security, are all suffering as a result of the insatiable greed of the wealthiest. They are corrupting or have already corrupted every democratic institution in pursuit of their self-interest, through lobbying, suborning public officials with promises of future gain, gerrymandering, vote suppression, the works. The single best single thing we could do for the country, socially, economically, and politically, is to use progressive taxation to cut the hydra that is throttling us -- the wealthy -- down to size. It wouldn't solve every problem overnight, but it would relief our collective life of a very great and oppressive weight. That's not socialism, it is what every revolution of the past 400 years was fought for. We should not need another violent revolution in order not to have the progress of 400 years stolen from us in slices. Since the beginning of time, the wealthy and powerful have always sought to justify their privileges as good for society. And they have always found others, not themselves wealthy, to act as their tribunes. We know enough now that it is time to stop listening.

- roidubouloi

January 19, 2012 at 8:25am

I am not satisfied with an analysis that ascribes all that's wrong with our economy to a cabal of Daddy Warbucks', and I'm certainly not prepared to concede that the government is or ever should be the final arbiter of income distribution. The majority has only the most tenuous ability to weigh in on what Federal spending they want, and majorities on a number of kinds of cuts are easy to come by. What you will never get a majority to agree on is that the people who brought you Vietnam, Watergate, stagflation, epic fiscal irresponsibility, the occupation of Iraq, the Crash of 2008, and a number of other Great Adventures, should get to have the final say on the economy. FWIW, you grossly underestimate the size and impact of waste, fraud, and abuse. Christine Romer put the cost to Medicare and Medicaid alone at "more than $40 billion per year", and that doesn't include the extent to which this turbocharges the overall cost increases in healthcare. I consider most subsidies to be in the same category--distortionary government spending that hurts the economy. I could go on at length, but I restrain myself. Suffice to say that if the goal is to raise taxes on ANYONE in order to fund government actions that have consequences that harm society, I'm against it. That said, I'd love to see all entitlements means tested, and could easily agree to some fiddling around with the marginal rates as long as it's clear that this isn't going to be the silver bullet that addresses our core economic problems.

- Robert Powell

January 19, 2012 at 12:32pm

All that's wrong? No. But a great deal of what is wrong is attributable to the Republican cabal that has been cutting taxes for the wealthy at the expense of the country and the economy. Krugman gives quite a good account of this today. Final say on the economy? That's simply a fact. The Federal government disposes of 25% of GDP and has control of the money supply as well. The question is how to use the power. Demanding that it be lodged elsewhere (with the self-appointed wealthy? with Wall Street?) is fantastical. As for the waste, fraud, and abuse canard, what if 10% of Medicare is wasted? The rise in the cost of Medicare has been far lower during the life of the program than the rise in the cost of private health care. So the waste, fraud, and abuse in the private sector must be truly staggering. If waste, fraud, and abuse are the greatest concern, the answer is not to get rid of government, but to get rid of the private health care market. Indeed, if cost increases had been held to the public level since Medicare was enacted, we would be saving something like a trillion dollars today. The answer to waste, fraud, and abuse is to root them out. Not to refrain from spending money for the welfare of the nation and its people. And none of that has anything to do with how the tax burden for the money we do spend, for well or for ill, should be allocated. Apples and oranges. Supply-side/right-wing economics is built on a series of myths, repeated endlessly, about the superiority of the market as the solution to all problems, even thought there is vast evidence to the contrary. The myths are absolutely impervious to the facts. One of them is that we cannot significantly raise taxes on the top 10% without damaging the economy. To the contrary, the best thing we could do for the economy would be to close the budget gap by raising taxes on the top 10%.

- roidubouloi

January 19, 2012 at 11:47pm

I think it's possible to raise taxes on the top 10% without damaging the economy, but it seems to me rather obvious that this alone is not the comprehensive answer to our economic woes that you seem to think it is. A $14 trillion economy may be the most complex single thing on the planet. There is no brain trust in Washington, or even at the New York Times, that is up to the job of effectively managing it. It's just barely possible that this raging torrent can be kept within some kind of channel by thoughtful regulatory oversight, taxation, and investment, but for the most part it's going to be directed by the decisions and actions of the hundreds of millions of people participating in it. The track record of government intervention creating negative unintended consequences in this area is sufficiently vast to give pause to any objective person suggesting a top-down solution to our current imbalances. Waste, fraud, and abuse is no canard, and its influence on not only the entire healthcare system but the entire economy is hard to overstate. If nothing else, the fact that millions of voters have first-hand knowledge of it makes proposals to increase government's share of and control over the economy much more difficult to enact.

- Robert Powell

January 20, 2012 at 8:25am