Boy, Have We Got an Inequality Problem
The Congressional Budget Office (CBO) just updated their invaluable data series on income inequality and the results are startling. Income inequality among households, both before and after Federal taxes, grew more quickly over the last two years of the series, 2003-05, than over any other two-year period on record, back to 1979.
Over those two years, the growth of inequality transferred $400 billion dollars from the bottom 95% to the top 5%. That is, had the income distribution remained as it was in 2003, the income of each of the 109 million households in the bottom 95% would have been $3,660 higher in 2005.
If this is the ownership society at work, I think we need to have a serious talk with the owners.
EPI will post our analysis later in the day (the Center on Budget and Policy Priorities will also post their nifty analysis), but I wanted to share a few of our findings with you right away:
- If we break households in groups of 20% each by income, well over half of household income (55%) was held by the richest fifth in 2005, the highest such share on record;
- The share of income held by the top 1% has climbed from 9% in 1979 to 18% in 2005.
- After-tax income of the bottom 20% grew 6%, or $1,800 over these years (1979-2005, in 2005 dollars); the middle-class gained $11,000, up 21%, over these 26 years. The average income of the top 1%, more than tripled, up 228%, for a gain $781,000.
- By 2005, the average post-tax income of the bottom fifth was $15,300, the middle fifth: $50,200, and the top 1%: $1.1 million.
These hugely different growth rates have led to much greater economic distance between income classes over the years. Back in 1979, the post-tax income of the top 1% was 8 times higher than that of middle-income families and 23 times higher than the lowest fifth. In 2005, those ratios grew to 21 (top compared to middle) and 70 (top to bottom), a vast increase in the distance between income classes.
Lest we forget, before our current problems in housing and financial markets developed, the overall economy grew solidly over this recovery, with notably strong productivity growth. Aggregate household income, according to these CBO data, grew $1.1 trillion, 2003-05. But, to put it mildly, these gains have failed to flow broadly throughout the income scale, and the extent of their concentration at the top of the income scale is historically unique. Just under two-thirds (63%) of the gain in household income from 2003 to 2005 went to just 5% of the nation’s wealthiest households.
Such concentration of income is unsustainable in a democratic society. The distributional mechanisms that have historically worked to ensure much more equitable outcomes appear to be wholly inoperative. Fixing them must be at the heart of any serious economic policy discussion.
And your data only show 2003-2005. S0, how much worse is it these last two years? And so many folks facing foreclosure...
December 13, 2007 7:11 AM | Reply | Permalink
These data stop in 2005...it takes the CBO a while to collect all the sources they need to update the series.
I suspect inequality kept going up in 2006...the concentration of income at the top of the scale tends to reflect corportate profits and appreciation of assets, like stocks, which did well that year. Less well, this year, so probably not such a big increase.
Re foreclosures...hmmm...these data don't include housing wealth, but if they did, I imagine that would exacerbate inequality, since folks at the top of the scale are not the ones losing their homes.
December 13, 2007 5:46 PM | Reply | Permalink
Fixing [the distributional mechanisms] must be at the heart of any serious economic policy discussion.
Hmm. And "fixing" them might be accomplished, how?
N.B. Unions? Fuggetaboutit!
December 13, 2007 7:18 AM | Reply | Permalink
duplicate
December 13, 2007 11:33 AM | Reply | Permalink
I think the fundamental problem is the Economics which has been taught and practised over the last 30 years in this country. This has resulted in the inequality of wealth away from "Physical Economic" activity to the investment model, which seems to create wealth for people just because they have money.
Financial "Instruments", "Derivatives" and "Products" are really the problem as we seem to create wealth basically out of no real economic activity. Till we do not get back to real economics where wealth can only be equated with "Physical Products", there is no real hope for people doing actual work.
But the problem created over the last three decades is that our best minds have been now conditioned into this "easy" way of becoming wealthy and not the science and technology that is needed to better this world. Hence the rest of the world will take over the leadership as their people are now much more knowledeable and advanced on the "real world" ...
December 13, 2007 8:05 PM | Reply | Permalink
Financial "Instruments", "Derivatives" and "Products" are really the problem as we seem to create wealth basically out of no real economic activity. Till we do not get back to real economics where wealth can only be equated with "Physical Products", there is no real hope for people doing actual work.
But the problem created over the last three decades is that our best minds have been now conditioned into this "easy" way of becoming wealthy and not the science and technology that is needed to better this world.
" But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: 'If you don't work you die.'"
-Rudyard Kipling
Let's be real clear here as to the actual problem. Investment is a good thing, as investments in capital are what drive the productions of physical products. Without investments, we would be making cars by hand rather than in factories, and we would all be earning 1/10 of what we are now.
The problem is that our investments are being led by speculations that again and lose value based on currency value changes rather than based on the productions of goods or consumer services.
The problem is that we have a fiat currency and a Federal Reserve that wants to create prosperity by printing money (which just redistributes wealth -usually upwards - it doesn't create it).
This also discourages savings, which is the one way that the poor can reliably move up in class (or would be if inflation were not higher than the interest rate).
Most of these problems are caused largely by dishonest money (which is also likely what will wind up funding the War in Iraq).
(If you haven't figured it out by now, I am a Ron Paul supporter).
"You say I'm a dreamer. We're two of a kind. Looking for some perfect world that we both know that we'll never find." - Thompson Twins, "Hold Me Now"
December 15, 2007 5:25 AM | Reply | Permalink
And what is your alternative to floating currency?
There is a fundamental misunderstanding, or at least a deliberate misleading, in thinking of precious-metal currency standards as somehow fixed by divine order. The only truth in the fixation is that many bidders (states) are collectively establishing a price for gold. Gold is only valuable because people want it, right? If that changes, bye-bye gold standard.
One could argue that it's been stable for a while, but silver looked that way, too, in the 1600s. New mining techniques crashed the market, IIRC.
And the Fed is not expanding cash money supply--perhaps you've noticed inflation rates are flat? Any inflation right now is externally driven and would happen with a gold standard.
Ron Paul is truly a dreamer, looking for a world that he won't find, because it doesn't exist.
December 15, 2007 8:26 AM | Reply | Permalink
And the Fed is not expanding cash money supply--perhaps you've noticed inflation rates are flat?
I haven't noticed that: home prices went up; college costs went up; gas prices went up; health care prices went up; drug prices went up; food prices went up; property taxes went up; etc...
As they say, the rate of inflation depends on what you buy and how much of it you buy. People have claimed that Bill Clinton changed the inflation formula because, otherwise, Congress would go broke because of "cost of living increases."
The only truth in the fixation is that many bidders (states) are collectively establishing a price for gold.
I read a while back that banks were going to limit how much gold they sell to drive up prices so the price of gold is manipulated and probably has nothing to do with the free market; the price of diamonds is similarly controlled by a cartel.
Ron Paul is truly a dreamer, looking for a world that he won't find, because it doesn't exist.
I'd say that you just don't know Ron Paul!
You might want to Watch This Video with Ron Paul and Jim Cramer.
While Ron Paul jokes about getting rid of the Fed, his primary concern is "auditing the Fed" and "making it more transparent" and "less secretive than the CIA."
The referenced video also suggests that the Fed caused the 2000 stock market bubble because of low margin rates and the 2007 housing bubble because of low mortgage rates.
While you can call Ron Paul a dreamer, consider the fact that California is threatening to declare a state of "finanical emergency" in a week or so! Thus, it appears, as the video implies, that the Fed's manipulation of the interest rates, is causing a lot of hell.
And, as you may know, JFK-- a hero to most folks on this list, wanted to allow the US government to print its own money and, shortly afterwards, JFK somehow died!
Your implication that Ron Paul is an unpractical dreamer doesn't mesh with reality since well respected figures, like JFK, had very similar ideas.
To boldly go...
December 15, 2007 11:13 PM | Reply | Permalink
I thought I should post this:
The present inflation report shows that the Fed can still generate growth, with a huge assist from massive deficit spending, but only at the cost of double digit inflation. Let's say that again: we have just had our second taste of double digit inflation, and we are going to be having our faces shoved in this hog trough. The Democratic representatives in Congress have not heeded sane and sound advice from either their financial or progressive wings. Both look antagonistic, but in fact are making the same point.
The financial wing has said repeatedly that present interest rate and spending policies are not sustainable. That which can't go on, won't.
The progressive wing has said repeatedly that inflationary pressures on the working class, and this includes the vast bulk of the middle class, are unsustainably high. That which can't go on, won't.
This was written by my favorite progressive blogger, Stirling Newberry and the full text can be found on his blog.
To boldly go...
December 16, 2007 1:10 AM | Reply | Permalink
If you haven't figured it out by now, I am a Ron Paul supporter
I hope you donated to the teaparty!.
CBS News even sent over a crew, to Ron Paul's headquarters, to get an "inside scooop" of the 12/16 moneybomb!
I was especially proud to donate today since the democrats have let us down too many times this week, like giving immunity to the telecoms, and I can't imagine voting for them in november.
To boldly go...
December 16, 2007 1:13 AM | Reply | Permalink
The ratio of the top one percent's income to the income of the middle class is now what it was to the poorest fifth in 1979.
What do the Democratic candidates have to say about this enormous shift of income to the greedy few, away from the vast majority?
Ellen, I don't know what ideas you have for correcting this maldistribution of income, but I'd like to hear. Unions might not be enough, but they're a necessary part of the solution. Denmark and the other Nordic countries, France, and Germany don't have this income chasm in large part because they have collective bargaining for 60-90% of their working people. Productivity gains get more fairly shared even before taxes and social welfare programs.
December 13, 2007 8:48 AM | Reply | Permalink
You're right; I should have said:
Unions? Social welfare programs? Fuggetaboutem! This isn't your father's economy; New Deal policies aren't going to hack it.
Income tax policy? But the income inequality Jared wants to alleviate is pre-tax. Altering tax rates has nothing to offer in resolving the basic problem of the inequalities in the distribution of economic income.
The problem is systemic and/or structural to the economy.
So what's the answer?
Don't ask me; I'm not an economist or even a policy wonk paid to come up with solutions.
December 13, 2007 9:06 AM | Reply | Permalink
I think a sharply progressive income tax is the policy that offers the best hope for results. In the short term it will produce more tax revenue that can be given to the lower income brackets. In the long term it will discourage future generations form seeking high paying occupations.
December 13, 2007 11:14 AM | Reply | Permalink
Sneaky.
I recall no shortage of CEOs movie actors, or stockbrokers in the 50s, with 90% rates at the top. And was there some kind of rush away from Wall Street in the 60s, with 70% rates? Were we poor? My father was a civil servant, and we did OK. I recall that time as allowing such innovations as computer mainframes, aeronautics, genetic studies, and did I mention going to the Moon?
A steeply scaled tax rate discourages pay in the form of windfall, and encourages pay as continuing annuity. Therefore, it enhances long-term income-production over short-term profit enhancement.
Then again, I wouldn't mind future generations not seeking easy money in the form of MBA programs. Instead maybe they'll learn to make stuff, design stuff, and research stuff, not just manage stuff and people.
December 13, 2007 4:04 PM | Reply | Permalink
The MBA is the worst farce ever to be inflicted on the American economy. Even given the study load of an MBA, it doesn't come close to matching the intellectual rigor of a Masters degree in any physical science or engineering discipline, the MD degree, or... ("Steady, just say it.") JD.
The MBA has authorized the sycophantic parasite, allowing it to feel self-justified in filling decision-making positions over the productive. Ayn Rand turned on her head (as justified as that may be), with the mediocrities lording over the productive, but this time the mediocrities are her heroes.
December 13, 2007 8:20 PM | Reply | Permalink
RocketE,
hear, hear!
December 14, 2007 3:35 PM | Reply | Permalink
Since 2005 was a record year for tax revenue, it may be that lower rates caused more compensation to be taken as income to be reported and taxed than as more vacation, better pension, etc.
In any case record tax income is hard to argue with.
The sons of the prophet are noble and bold,
and quite unaccustomed to fear.
But the bravest by far in the ranks of the Shah
was Abdul Abulbul Amir
December 14, 2007 10:25 AM | Reply | Permalink
Tom Wright,
excellent use of your rapier in undressing Mister Brown and his subtle and devious attack on liberal thought.
December 14, 2007 3:32 PM | Reply | Permalink
Re: Unions? Social welfare programs? Fuggetaboutem! This isn't your father's economy; New Deal policies aren't going to hack it.
If that's case then why do those policies seem to work in large parts of Europe?
December 13, 2007 3:29 PM | Reply | Permalink
Different economies? Different histories? Different social mores?
And let's see what happens to them when their tiny little economies are fully integrated into Europe let alone into the World, shall we?
December 13, 2007 5:00 PM | Reply | Permalink
Or different policies? I vote for that one.
Also, we've been down this road before: back in the late 19th and early 20th century. Mass unionization and the New Deal reversed much of that trouble. Of course the exact same policies we had under the New Deal would not be what's needed today, but New Deal-like policies could be. Both our own past experience and the experience of other countries point in that dircetion.
December 14, 2007 3:23 AM | Reply | Permalink
You're right, Ellen, re a pretax problem. You can offset some of the damage with progressive tax policies, but I don't think you can fight this solely through the 'fisc'--taxes and transfers. You have to go after the 'primary distribution' ie, market outcomes, before taxes and gov't transfers come into play.
My answer to your question is to restore workers' bargaining power. That happens through unions, minimum wages, far more extensive social insurance (hth care, yes, but pensions too), work supports for low income workers, and better macro policy (full employment!).
For much more detail, see the Agenda for Shared Properity section on the EPI website: http://www.sharedprosperity.org/event20071120.html
December 13, 2007 5:55 PM | Reply | Permalink
Strengthening unions is the single most important step Democrats could possibly take. They should repeal Taft-Hartley, institute mandatory, nationwide card-check organizing, and staff the Labor Dept with regulators whose mission is to promote organized labor.
The wealth distribution is not the result of impersonal market forces, but of lopsided negotiations. Corporations are granted a huge bundle of privileges, immunities and limited liabilities that simply aren't available to the unorganized individual. Power inequality causes income inequality, and Republicans cause power inequality by intentionally and systematically gutting the power of organized labor.
Now some workers will have an easier time organizing than others. Outsourcing is going to make it tougher for some unions, but management can't pick up and move their mineral deposits, forests, hotels, or restaurants to China. The only thing stopping these industries from being organized is fear, suspicion and government policy. Republicans are the source of all three.
December 13, 2007 9:23 AM | Reply | Permalink
hmmm...what has been happening to middle class "safety nets"?
Unemployment Insurance for the middle class has been cut waaaay back--forcing many who were employed in mostly union jobs--because more of those jobs than any other have disappeared--never to return--forcing someone making a LIVING wage into lower paying jobs and therefore in order to maintain their standard of living and they used their houses as atm's and look where THAT has gotten the middle class.
Trade adjustment and assistance for laid off workers is being whittled away to almost nothing. community/technical colleges aren't keeping up with current job skills so you have people who have been laid off in one industry being retrained in skills for another dying industry until they get laid off again (fault dept of labor and local community colleges as well as federal dollars for not allowing more flexibility and for just plain drying up funds).
Financial aid has been cut waaayy back forcing more and more people to BORROW in order to go to school. You can't work your way through school anymore--1 year of school costs more than working full time at an entry level job--and what if you have a family to support? People are borrowing money to go to school but most of it is being spent on living expenses--then they can't get jobs that will support the family AND pay off student loans that are being made at artificially high interest rates because the student loan industry is has been allowed to make huge profits at tax payer expense (they loan much too much...Lenders and financial aid officers do not link the demand for jobs, the projected wages for those jobs, the life cycle of those jobs, and the likelihood that the student will be able to afford to pay off their loan once they have graduated and started working. Kids and parents should be taught how to research job markets BEFORE selecting a major and going to school. (Yes. Go ahead and major in Ancient Greek Literature--but just be aware of the consequences of your choice. And I hope many people still pursue the arts--because we need to remain human.)
Solutions--here are my suggestions--do not give any business any tax break or tax credit or any financial support paid for by tax dollars that does not provide a LIVING WAGE to ALL EMPLOYEES. Employers who pay a living wage could get breaks on payroll or unemployment taxes.
Put money into educating the workforce--especially incumbent workers. Technical college or advanced training should be at low or no cost to middle and lower income individuals--especially for those in industries that are changing enough to make their skills irrelevant or are dying or are being outsourced. The in demand jobs are changing so rapidly that workers need to constantly be learning and improving skills. Reward employers who provide their employees the opportunity to do THAT.
The SBA, through the SBDC system, could provide employers with assistance if their business starts to falter. And this should be provided to small and medium sized employers--not just the big ones.
Encourage more microenterprise--especially among women and minorities. Get rid of "middle aged white guy in suit" lending mentality.
December 13, 2007 10:44 AM | Reply | Permalink
Re: Unemployment Insurance for the middle class has been cut waaaay back
If you're talking about public unemployment insurance (not union SUB pay and the like) that has not been cut in any literal sense. However it has not kept pace with inflation. A generation ago the cap of about 1000$ a month was still a livable income, with careful budgeting. Today it isn't.
December 13, 2007 3:39 PM | Reply | Permalink
Also, unemployment insurance reaches fewer and fewer jobless workers. See the website of the National Employment Law Project for tons of great ideas for reforming/updating the program: http://www.nelp.org/
December 13, 2007 5:57 PM | Reply | Permalink
Ellen said:
How did they get the way they are?
December 13, 2007 11:33 AM | Reply | Permalink
Because the economy changed from one based upon manufacturing to one based upon finance? 401(k)s? LBOs? REITs? securitization of credit? hedge funds? The management of Other People's Money.
Forty years ago the dullest office in the bank was the Trust Department. Times have changed.
December 13, 2007 4:55 PM | Reply | Permalink
Why did the economy change the way it did?
December 13, 2007 5:32 PM | Reply | Permalink
Breakdown of Bretton Woods? Nixon closing the gold window? The "B" school? Wharton? MIT? Japanese trade policy? Rise of the Asian tigers? Bloomberg terminals? Mike Milken and Drexel, Burnham? The Chicago school? BITs? Liberalization of restrictions on trade and currency controls?
And not to forget Faye Dunaway and Michael Douglas!
December 13, 2007 5:59 PM | Reply | Permalink
I also blame the rise of YOYO economics
http://www.bkconnection.com/static/bernstein-excerpt.pdf
December 13, 2007 5:59 PM | Reply | Permalink
Yep; Lloyd Blankfein is on his own. $54 million last year; $70 million this year. And Goldman's 29,000 full-time staff aren't doing that badly either -- average, $360,000.
And they deserve every penny 'cause they made it the old fashioned way -- they earned it! After all they're the ones that grew the economy, right? Auto workers and stewardesses sure as Hell didn't.
December 13, 2007 7:07 PM | Reply | Permalink
That's "flight attendants", you sexist pig.
December 13, 2007 7:18 PM | Reply | Permalink
And I thought it was "stews." My bad.
December 13, 2007 7:14 PM | Reply | Permalink
Yeah, like my daughter's friend who was hired by them, right out of a BA degree exactly at that average salary of $360K. And what 22 year old,with a degree in dance, is worth $360K? Why the daughter of two senior executives of course.
Goldman-Sachs doesn't earn shit! They produce nothing, and survive by moving other peoples money around and taking a cut. Good Republicans all, but the brown shirts have merely been replaced by brown noses.
December 13, 2007 8:33 PM | Reply | Permalink
Hey RocketEngineer! Good to see you dropping in at the Cafe on your quarterly flyby. Wonder though -- 78 Comments in 2 years? Well; I guess that's enough experience to be qualified to hand out a troll rating. At least for a Rocket Engineer
December 13, 2007 9:13 PM | Reply | Permalink
Well, Ms. Ellen, some folks have lives outside the blogosphere.
December 14, 2007 5:04 AM | Reply | Permalink
Ellen,
you're getting close, dig deeper.
December 14, 2007 4:55 AM | Reply | Permalink
Compare this James Garner with this James Garner.
December 13, 2007 6:18 PM | Reply | Permalink
If you're counting cultural influences, don't forget
J. R. Ewing and Alexis Carrington
the Forbes 400
December 13, 2007 8:50 PM | Reply | Permalink
That doesn't answer the question,
Why did the economy change the way it did?
(hint) 'Who/What' changed the "economy" which then changed the "distributional mechanisms" which then caused the inequality of wealth?
December 14, 2007 4:58 AM | Reply | Permalink
OK--I'll take a cursory stab at this question of why the economy changed, but it's too much for a comment. I try to cover it in chaps 1&2 of my book, All Together Now.
But here's my impressionistic answer. YOYO economics, born of Milton Friedman (but really less him than his ideas interacting with money-laden politics), led to the fundamental shift in the central question of economics from: What can government do to be sure that everyone can contribute to and benefit from the available resources? to, What can government do to get out of the way?
The former question considers the challenges inherent in national economies since Adam (Smith, of course) and points to collective solutions; the latter, especially when mixed with our unique brand of heavily lobbied government, ignores workers except to tell them, “You’re on your own. Here’s a tax cut. Now go out there and optimize.”
A few other landmarks: Ray-gun taps supply-side economics, he busts the Patco strike, Clinton-a fine president in many important ways-decides to push NAFTA first and health care second, he buys into the "era of big gov't is over" rhetoric, GWB compounds all the above, and the Greenspan plays along, endorsing bad fiscal policy and watching from the side as damaging bubbles inflate...
December 14, 2007 5:44 AM | Reply | Permalink
I think I'll go with Robert H. Frank's The Winner-Take-All Society.
For anyone interested in Professor Frank's ideas in shortened form try this.
December 14, 2007 6:04 AM | Reply | Permalink
bernstein said:
"paragraph 2"
"paragraph 3"
He's got it!
Now, if we can only get bernstein to expand on paragraph 4.
an aside: Rubin, Clinton and Greenspan worked together on economic policy, they balanced the budget and gave us a surplus.
Bush gets elected. Not long after, I saw a economic news story where it showed Bush and Greenspan leaving an office in which they had a meeting. Not long after I was watching a hearing on C-SPAN and Greenspan was the witness. This was NOT the Greenspan who served under Clinton, this guy was the opposite. He was now in favor of huge tax cuts, paying down the national debt too fast was bad, a balaced budget was not always necessary, in effect, he divorced Rubin/Clinton and was now spewing the Bush philosophy.
As I watched this testimony I was reminded of that news clip of the Bush/Greenspan meeting and I thought to myself; Greenspan sold out to Bush in that meeting to keep his job.
reminder to bernstein; please expand on paragraph 4.
December 14, 2007 8:02 AM | Reply | Permalink
Part of our GNP is now poor people...watch
your local paper for articles about 'the homeless'...you may recognize some of them! LOL
December 13, 2007 11:36 AM | Reply | Permalink
I think the fundamental problem is the Economics which has been taught and practised over the last 30 years in this country. This has resulted in the inequality of wealth away from "Physical Economic" activity to the investment model, which seems to create wealth for people just because they have money.
Financial "Instruments", "Derivatives" and "Products" are really the problem as we seem to create wealth basically out of no real economic activity. Till we do not get back to real economics where wealth can only be equated with "Physical Products", there is no real hope for people doing actual work.
But the problem created over the last three decades is that our best minds have been now conditioned into this "easy" way of becoming wealthy and not the science and technology that is needed to better this world. Hence the rest of the world will take over the leadership as their people are now much more knowledeable and advanced on the "real world" ...
December 13, 2007 8:05 PM | Reply | Permalink
I think we need to rethink the social meaning of the word "tax". The RW use it as anathema, and pretend that it doesn't make a difference WHO pays the tax, but rather how MUCH taxes there are. And of course, all this anti-tax rhetoric is predictably linked to tax cuts for the wealthy (and for capital gains) as well as huge deficits.
Here are a couple of taxes that should be presented as positive (along with another set of taxes on pollution & on scarce resources, like large-scale agriwater consumption). First the farce of 'death tax' should be challenged, with a MUCH steeper tax not so much on the first $10 million in wealth -- where the usual 40%-50% will do, but on higher amounts of wealth, which should be taxed at something more like 2/3.
Further, there should be an ANNUAL wealth tax of anyone with net assets of over $10 million. The tax could be a small percentage (say 0.1-0.3%), but by taxing ALL large-scale individually owned wealth it could generate a substantial stream of income.
Then corporations should be taxed, and heavily, on ALL forms of employee compensation over, say $500,000 per year. A heavy tax, not on the individual (where the rates would be similar to those in the 70s) but on the payor of such largesse could specifically allow for a cause of action against publicly traded corporations that enormously remunerate their top people. Also, a small tax on arbitrage transactions, and trade in securities, again a tiny fraction of 1%, would tend to slow down the movement of money and generate still more income to the state. In addition, capital gains tax (I know it's a very complicated issue about which I know little) should be generally restructured, raising the tax ONLY on that proportion of capital gains that exceeds inflation, and especially the portion that exceeds say, inflation + 10% or more.
These taxes could be successful if more forceful Democrats used them to shore up Medicare, reduce the deficit, and pay for basic important needs such as universal single payer health care coverage and investment in "eco-industrialization" along with WPA-analogue type programs targeted at where depression conditions persist.
And of course, let's not forget N.O., an issue that needs to be covered much more regularly here at TPM Cafe, especially now with the public housing battle, and HUD's current attempt to blackmail the N.O. City Council by withholding $137 million in development funds unless they let a major public housing project they want to preserve get demolished (you heard it right -- at a time of acute housing shortage there).
December 14, 2007 8:24 AM | Reply | Permalink
What a remarkably meaningless statement.
Income for the most part is earned it is not distributed. In any case, if Bill Gates had dropped dead on Dec 31 of last year 99.999% of the rest of us mortals would not have seen another nickle in the pay check.
The sons of the prophet are noble and bold,
and quite unaccustomed to fear.
But the bravest by far in the ranks of the Shah
was Abdul Abulbul Amir
December 14, 2007 10:24 AM | Reply | Permalink
Ah, AAA with the old meritocracy defense--'income is not distributed, it is earned.'
Would it were so. Under that assumption, we'd never have to concern ouselves with such matters of income distribution, because they would all be justly determined.
The problem with that is that it's not so--the workforce has been demonstrably highly productive over this business cycle but most workers have seen little real gains. Where, then, have the gains gone? See the share changes I document in the post.
In your world, however, we are not supposed to be critical of large income shifts, because they are somehow, by definition, inherently just.
December 14, 2007 5:23 PM | Reply | Permalink
. . . the workforce has been demonstrably highly productive over this business cycle . . . . Jared Bernstein
This assertion is founded on a tautology generated by definitions and goes on to beg the question of who or what is responsible for the increase in productivity and thus, has a moral claim(?) to all or part of the profits flowing from this increase.
If workers are "given" better training/education and/or better tools to work with, under what theory ought they share in the increased profits presumably generated by the increased productivity?
P.S. That's not a rhetorical question. And in responding kindly cite to the ethical philosopher upon whose theories your answer depends.
December 14, 2007 5:44 PM | Reply | Permalink
Ellen,
The median income of working age families is down about $2,400 in real terms, 2000-06, a period when productivity rose about 20%. If that seems fair to you, if that seems like an acceptable, sustainable economic outcome, or if you think one needs to cite an 'ethical philospher' to explain what's wrong with that picture, then I'm afraid we'll have to agree to disagree.
December 14, 2007 9:19 PM | Reply | Permalink
Actually, I'm confident we agree on many things. For example ----
1. We agree that "labor productivity" is the product of an algorithm, the result of carrying out a simple computation (although how one goes about generating perhaps, its most critical factor, the price deflator, is disputed).
2. We agree that the result of applying an algorithm of the type under discussion has no explanatory power; it suffers from an excess of "facticity."
3. We agree with David Hume that is doesn't imply ought.
4. And finally, we agree that you have offered no argument in support of your assertion that workers ought to capture a portion (what portion you don't say) of any increase in income which accompanies an increase in productivity without regard to whether those workers were responsible for any part of the increase.
N.B. My view is that it is not possible to argue distributional fairness or unfairness from the fact of changes in "labor productivity." Fairness is a political and moral issue and must be argued on those grounds. Economic facts do not speak for themselves. And those who toss them into an argument as if they did are simply begging the question.
December 15, 2007 3:44 AM | Reply | Permalink
I visualize Ellen giving a power point presentation to a group of executives, who have manipulated for themselves $10s of millions in salary, not counting stock options, in some unnamed corporation. She's armed with statistics, charts, algorithms, productivity references, a lot of GDP figures, and maybe the Lafer Curve. Blah, blah, blah.
Ellen wastes no time on things like fairness in distribution of corporate profits to those on the assembly line, or
to what happens to a country where much of the profit is grabbed by the individuals who Ellen is addressing. But hey, I received a $28.00 quarterly dividend from the corporation Ellen works for so I guess I share in the profits too. Ellen seems to support the "every man for himself" economic view.
Yes, mustn't argue fairness lest those multimillion compensation packages of the executives get questioned. What was it that the Chairman/CEO of Exxon, Lee Raymond, retired with? And Jack Welch of GE?? Well, maybe they alone were responsible for the increase in productivity so they quite obviously deserve every penny and perk.
Why does the idea that 'we have to offer large compensation packages to executives so we can get the best people' not apply to the guy on the assembly line?
Reagan allowed the "unbridled capitalism idea" to become acceptable and we've been paying the price since.
December 15, 2007 6:41 AM | Reply | Permalink
JohnW1141 just knows -- I mean he really knows -- what distributional "fairness" requires. Because . . . because . . . ? I mean anyone can see it, right? I mean Jeez, it's just so obvious, right?
December 15, 2007 8:16 AM | Reply | Permalink
Ellen,
lets start with what I know it ISN'T.
Hedge fund managers that earn $40, $50, $60 million and are taxed at a lower rate than some blue collar guy earning $50,000.
And, No, I don't know what "distributional fairness" requires, but I do feel it should exist, something that seems to be anathema to today's corporate executives;
the "Too much is never enough" gang, or maybe the "Lets treat this corporation (publicly owned entity) like its our own personal piggy bank." crowd.
December 15, 2007 10:40 AM | Reply | Permalink
Ellen,
The median income of working age families is down about $2,400 in real terms, 2000-06, a period when productivity rose about 20%. If that seems fair to you, if that seems like an acceptable, sustainable economic outcome, or if you think one needs to cite an 'ethical philospher' to explain what's wrong with that picture, then we'll have to agree to disagree.
December 14, 2007 9:20 PM | Reply | Permalink
Not so. Its an observation that if those at the top earn less, it does not mean that I or anyone else will earn more.
If Bill Gates had not sold his last batch of stock and thus lowered his income, no one elses income would have risen. For that matter, his broker's income would have dropped as well.
The sons of the prophet are noble and bold,
and quite unaccustomed to fear.
But the bravest by far in the ranks of the Shah
was Abdul Abulbul Amir
December 14, 2007 8:32 PM | Reply | Permalink
AAA: You're confusing income shares with income levels. The analysis you cite is based on shares--they sum to 100%. If your shares goes up, mine goes down. See the appendix table in my report:
http://www.epi.org/content.cfm/ib239
December 14, 2007 9:23 PM | Reply | Permalink
Now it is clear. If Bill Gates did not sell that last batch of stock, everyone else's share of total income would have gone up (except his broker). However, since that has ZERO effect on the actual income of any person else other than the broker, it is in practice meaningless.
When I took the second job last year, the result is everyone else's share was lower than it would be if I had not done so. So what?
The sons of the prophet are noble and bold,
and quite unaccustomed to fear.
But the bravest by far in the ranks of the Shah
was Abdul Abulbul Amir
December 16, 2007 10:34 AM | Reply | Permalink
Not trolling, just shallow. JB has the correct response.
December 14, 2007 5:48 PM | Reply | Permalink
unfettered capitalism is a game of monompoly. Eventually, somebody owns all the property and all the houses and hotels and everybody else goes broke. The winner might have been luckier, or smarter, and he might have done some cheating. When he got way ahead, it wasn't a fair game anymore and nobody else had any real chance. I think it is time to reshuffle the properties and take the houses and hotels back.
December 14, 2007 8:15 PM | Reply | Permalink
randyb,
excellent observation.
December 15, 2007 5:34 AM | Reply | Permalink