A Good Deal for the Great Regression
Chuck Sheketoff
The sharp rise in fuel prices may remind some of the 1970s, but the more important economic story of rising income inequality is akin to the late 1920s. Sadly, our country has regressed to the days prior to the Great Depression.
The Economic Policy Institute recently released reported its latest snapshot of growing wage inequality noting:
in 2004 the upper one-tenth of 1% earned 70.4 times as much as the average person in the bottom 90% of the income scale. Just 25 years earlier in 1979, the ratio that was only 21.0-to-1. In other words, in 1979 it took the highest-paid earners 12.4 days to make what most other earners did in a year, but by 2004 that feat was accomplished in a mere 3.7 days.
To further illustrate just how absurd things have gotten, the Oregon Center for Public Policy recently compared the income of an Oregonian working full-time at the state’s median hourly wage to that of John Paulson, the highest-paid hedge fund manager last year, who raked in $3.7 billion last year.
The result: it would take the typical Oregonian 119,000 years to equal Paulson’s take last year. That time span is about as long as modern humans have roamed the Earth.
So what can we do about this Great Regression?
We can start by looking at how the New Deal following the Great Depression created a broad middle-class society.
It was a good deal then, and it would be a good deal now.
Discuss.
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Jun 25, '08
Think about it
Jun 25, '08
The New Deal created a broad middle class society? I'm afraid this view of history by mostly history professors (soft scientists) has come increasingly under attack by economic professors (hard scientists). From wikipedia:
the "Great Depression was very significantly prolonged in both its duration and its magnitude by the impact of New Deal programs." ... without Social Security, work relief, unemployment insurance, mandatory minimum wages, and special government-granted privileges for labor unions, business would have hired more workers and the unemployment rate during the New Deal years would have been 6.7% instead of 17.2%
Jun 25, '08
I'm going to have to second geoffludt on Chuck's wildly inaccurate portrayal of history. The New Deal didn't create a broad middle class society, World War II and the GI Bill did. Think about all the track homes and suburbs that spawned in the early 1950's as opposed to the Timberline Lodges and Bonneville Dams built during the New Deal. You could make an argument that the New Deal enabled the creation of a middle class, but definitely not the middle class itself. That's just a simplistic repackaging of history to fit the contours of a call for socialism.
Jun 25, '08
[Childish insults deleted. -editor.]
4:17 p.m.
Jun 25, '08
Wow, it seems to be the conservative/Republican trolls are hitting the site in force lately.
You just have to love how geoffludt twists the information to fit his bias. Here's the important piece that was left out of his citation:
Jun 25, '08
Thanks for the minority view, Jenni. In related news, a minority believe 9/11 was a conspiracy.
4:36 p.m.
Jun 25, '08
Dulcinea can't even be bothered to read Jenni's comment and comprehend it.
(Hint, Dulcy: You just said that geoffludt's viewpoint was akin to the 9/11 conspiracy theorists. Is that what you meant?)
Jun 25, '08
Kari -- Please don't distort my analogy. I said that the minority viewpoint Jenni posted was akin to a minority believing 9/11 was a conspiracy as opposed to geofflundt's MAJORITY viewpoint.
4:44 p.m.
Jun 25, '08
Try again. Jenni provided the citation to Ludt's quote -- which indicated it was a "minority viewpoint".
4:46 p.m.
Jun 25, '08
Dulcinea:
No, you still don't get it. I was posting the portion of the paragraph that geoffludt left off.
What geoffludt was posting was the MINORITY viewpoint, not the majority.
That is why I posted the beginning of the paragraph so people could see that he'd left off the beginning where it said that that viewpoint was in the MINORITY.
The MAJORITY viewpoint is that The New Deal was indeed good for the economy.
4:48 p.m.
Jun 25, '08
Kari is correct - I am saying that his quote is the minority viewpoint.
I've been trying to respond, but keep getting stuck in the spam filter... how funny. ; )
Jun 25, '08
OK - How exactly are we supposed to fund this? For better or worse between Bush (I never saw Bush veto a spending bill until very recently) and a go-along congress, we have a huge deficit. So we run it up even larger to create some more govt jobs?
Right now, a lot of people are strapped by the amount (if you summed it all up an avg working guy is prob pushing 35% (between fed/state and local) of income in taxes they are paying. The great depression tax rates were way lower in any case.
7:16 p.m.
Jun 25, '08
Do you have some citation for that? Because according to an anti-New Deal report from the libertarian Cato Institute (which blames tax hikes during the Depression for prolonging it), they were much higher:
The top tax brackets now are paying nowhere near 79%.
Jun 25, '08
"top individual rate"
I think I said the rate the average wage earner guy pays.
"State and local governments also increased taxes during the 1930s, with many imposing individual income taxes for the first time."
Gee, how novel when things start getting better - raise taxes to kill it. If you can answer the original question of how we are going to fund this besides even more deficit spending which will really tank the dollar, let me know.
Jun 25, '08
June 25, 2008
Our capitalistic system depends upon the theft of resources and exploitation of labor. Raw capitalism flourishes when there is a lack of regulatory oversight. In turn this leads to the well-known cycles of boom and bust. The rich blow up the balloon – usually speculating with other people’s money – then they get out of the way before it blows. From my reading of history, this seems to fit the 1920s and now the early 2000s to a tee. Of course most people are not rich and will suffer, and as usual the poor take the hardest hit.
As was made abundantly clear in a recent House hearing on oil futures (index) speculation, lawmakers face an immediate economic crisis, the so-called “dark market.” Thanks to the “Enron loophole,” and through proxies in London, index speculators (Goldman Sachs, and other big financial players) have “distorted the price discovery function” by flooding the commodity’s futures market with money moved away from the mortgage/credit/banking meltdowns and into what is essentially an unregulated, overseas market. Speculators gone wild, I call it. More on the hearing here...
If Congress does the right thing, rein in the traders, then the oil bubble will burst sending financial shockwaves across the globe. As I understand it, a lot of pension fund money is at stake. On the other hand, if Congress fails to act, $200/barrel oil is inevitable. One way or another a lot of people are going to get hurt.
That’s where American economic policy is today; as usual held hostage by the rich and special interests. Personally, I think we should nationalize big oil, at least for the time being. Gasoline in Mexico today cost about half what it is here, it’s state-owned.
GreenFloyd
9:30 p.m.
Jun 25, '08
OK - How exactly are we supposed to fund this?
I don't think Chuck is even proposing a specific program, but I do think we need a program of investment in infrastructure and education - including our energy infrastructure.
As far as paying for it, I'm with Barney Frank: We get the money from whatever magic hat the Iraq War is coming from.
We've been told for a generation that we can't spend money on discretionary programs because of the deficit and the debt -- but when the Republicans suddenly want to pursue an elective war in Iraq, the money is magically available.
End the war, and then start spending the billion dollars a day on things that will actually create economic growth in this country.
Jun 25, '08
"I do think we need a program of investment in infrastructure and education - including our energy infrastructure."
Well, they've had 35+ years to figure out energy independence and nothing so far. I don't hear anythign from McCain or Obama even addressing this (please we can run our cars on windmills or solar panels.)
"We get the money from whatever magic hat the Iraq War is coming from."
Great, glad to hear two wrongs make a right. However, I think determining spending priorities is a good start. Again, Bush has not vetoed any spending that I am aware of, so what has happened up to now?
THe politicians we are stuck with are not that forward thinking anyway. They'd rather spend their time on witch hunts against the other party.
Jun 25, '08
Well Chuck I've been flogging this horse for years and gotten a lot of shrugs. Oddly, some of my Republican friends are starting to see what I've been talking about. I don't think it will take less than a couple new tax brackets for the very ultra rich and a serious hit on investment income. Class warfare, I know...
1:00 a.m.
Jun 26, '08
And do you know what those rates were? Do you know how they compared to the tax burden payed through the tariffs on goods that the income tax system supplanted?
And why would you assume that any raise in income taxes would raise the rates on middle-class taxpayers as opposed to rolling back the tax cuts on businesses and large incomes that caused part of the deficit problem?
Jun 26, '08
If only making good sense were the key to an idea becoming policy, this would be one fine country.
Jun 26, '08
Posted by: Tom Civiletti | Jun 26, 2008 1:32:29 AM
If only making good sense were the key to an idea becoming policy, this would be one fine country.
Sometimes the people have to crack the whip, otherwise you wind-up with a lazy ass.
And remember, teach your children well, instill in them a healthy skepticism toward government and to never be afraid to ask a question or point out an injustice...
Floyd
Jun 26, '08
"why would you assume that any raise in income taxes would raise the rates on middle-class taxpayers"
Beacuse when you see hoofprints, you think horses not zebras. Tax increase will hit all of us either directly or secondarily like paying for a windfall profits tax thu higher gas prices. So for everyone in favor of hitting ugly big business, remember who actually pays for those taxes. Anyways:
"Yet, tax increases by Hoover and Roosevelt did not produce increased tax revenue. In 1929, 98% of Americans did not pay income tax and income tax rates for the top 2% ranged from 0.5% to 24%."
http://www.indopedia.org/Great_Depression.html
10:01 a.m.
Jun 26, '08
I would like to hear what Chuck thinks good solutions would be, because he's got more of a policy background than I do.
But let's be clear: in the past 30 years, the US has decided to radically change the way it raises revenue, shifting the burden away from the wealthy and toward the middle class. It's not purely a Republican effort, either--Carter was the first to start cutting top marginal tax rates, and the Clinton/Gingrich axis was a bonanza to the rich (though Clinton did hike the top marginal rate, ah, marginally.
Many rich Republicans and their strangely enthusiastic poorer surrogates think this is fine as a matter of fairness. That's certainly arguable (and I would argue it strenuously), but what's not arguable is that the central thrust of the trickle-down argument is bogus. Our economy hasn't flourished as a result of enriching the already rich. We're in the second recession of the Bush administration. So as a consequence, these tax policies are neither far nor effective.
Jun 26, '08
Big income disparity and stagnant wages?
I can blame that on both Clinton & Bush.
Both refused to stop the flood of millions and millions of illegal immigrants thrilled to make even $6/hr. compared to their previous wage of maybe a $1/hr. plus our social services hand outs reducing their out of pocket costs so much that remittances to Foreign countries from their workers here has grown for decades, much faster than inflation or wages.
NAFTA and other free trade deals (pushed and signed by both Pres.s) have outsourced what were good paying jobs and the remaining ones here are being stolen by illegals.
Harvard Professor of economics Howard Borjas has proven this as well as other economic experts. Mr. Borjas's calculations of depressed wages in Arizona (over $1.2 Bil. in lost wages last year alone)was significantin the 9th Circuit's decision to alow the new AZ. law requiring Employers to not hire Illegals.
What really sucks? Both McCain & Obama want even more third world workers to keep wages down and their corrupt biz owners happy.
If you were to help me stop this, the category of "haves" and "have nots" would stop growing here. www.oregonir.org
Jun 26, '08
There's one basic flaw with Mr. Butcher's post (and the sites he links to).
They look at comparative inequality. They provide no statistics on whether the real wages of those at the bottom of the income tiers in our nation have gone up or down in the last 30 years.
If they have gone down, then we have a real problem on our hands. I would like some links to statistics demonstrating this fact (not anecdotal stories of former factory workers landing jobs at McDonalds).
If they have gone up, only to be dwarfed by the gains of the wealthy, then we have a whole different set of policy questions. The most important of which is - should we greatly reduce the incentive of greed that leads capitalists to create economic wealth for themselves by creating jobs for all the rest of us? That leads those who greatly excel at what they do, whether it be Mr. Paulson the Hedge Fund manager or Mr. Jordan the basketball player, from making boatloads of money from people freely giving it to them?
I'm not talking about issues of specific programs justified by basic justice - providing decent health care to all, providing solid mass transit alternatives to those who can no longer afford to drive, etc. I'm talking about redistribution for redistribution's sake, which seems to be behind the thinly-disguised envy of Mr. Butcher and his links.
Jun 26, '08
As for the comparison with the Great Depression and the New Deal:
There is no issue about the question I raised in my last post - the lot of the poorest Americans is immeasurably better than the lot of poorest Americans in the 1920's and 1930's. We may be returning to income inequality levels of the 1920's, but absolute standards of wretchedness are much less than they were then.
An excellent book I would recommend regarding the Presidency of Franklin Roosevelt is "The Lion and the Fox," by James McGregor Burns, written in the 1950's. It is clear from reading the book that Roosevelt really didn't have much of an economic philosophy, but was improvising as he went. Some policies worked well and provided long-lasting benefits (Social Security), some did not (the National Recovery Administration - NRA - with its attempts to create industry cartels to promote monopoly pricing). The overall fortunes of the nation in 1939 (before the war-time boom) were better than 1932, but not by much, and there was a big up-and-down with the the recovery of 1934-36 followed by the "mini-depression" of 1937-38.
Many of the legacies of the New Deal listed in one of Mr. Butcher's links are large physical projects such as Bonneville Dam, the Yaquina Bay Bridge, Timberline Lodge, etc. Today's left seems to universally deride such projects despite the job and economic benefits they bring - witness the caterwaulings of the eco-left against a new I-5 Columbia River bridge, or an LNG terminal in Astoria, or nuclear power plants anywhere.
10:23 a.m.
Jun 26, '08
UPO -- Are you confusing Chuck Butcher and Chuck Sheketoff?
Rick Hickey wrote... Big income disparity and stagnant wages? I can blame that on both Clinton & Bush.
Wow. Bush is so unpopular the vice-chair of the Marion County Republican Party is blaming him.
10:30 a.m.
Jun 26, '08
The New Deal created a broad middle class society? I'm afraid this view of history by mostly history professors (soft scientists) has come increasingly under attack by economic professors (hard scientists).
Now I have to buy a new office chair. I just fell out of it laughing. Economics is a hard science? Why don't we throw in chiropractic, aromatherapy, and acupuncture while we're at it?
Then there's this from Steve.....
OK - How exactly are we supposed to fund this? For better or worse between Bush (I never saw Bush veto a spending bill until very recently) and a go-along congress, we have a huge deficit. So we run it up even larger to create some more govt jobs?
How do you think they're going to fund it?
Hint: Even by official estimates, we're spending over 10 billion a month (yeah that's billion with a "B") on the Big Adventure in Iraq without budgeting or raising taxes for it. We have a defense/security shadow budget in the hundreds of billions that's so "off the books" no one can even begin to guess what it's being spent on.
We fund it the way we have since the end of WWII, we print more money, sell bonds to China, Japan, and the Saudis. We then pray like hell that the commercial situation of Mutually Assured Destruction will prevent them from calling their notes.
It will continue to work without reference to Gresham's Law or any other basic economic rule until such time as we lose our taste for petroleum, antibiotic soaked Filet O Fish sandwiches, and cheap Barbie Dolls.
Scientific? Give me a break......
Jun 26, '08
Jeff writes: But let's be clear: in the past 30 years, the US has decided to radically change the way it raises revenue, shifting the burden away from the wealthy and toward the middle class.
Jeff, is it true that the middle class is paying a larger share of total taxes today than they were in 1978? I don't have evidence to the contrary, but I don't think I've heard the argument framed in that way before.
What we know has happened is that the wealthy have had larger reductions in their tax rates than the middle class have. But I'm pretty sure the middle class has had reductions as well -- starting with Reagan and continuing through with Clinton and Bush II -- they're just smaller than the reductions at the top. But since income inequality has grown so much, the top 10% are paying a very large share of total income taxes. . . something like 60-70%, but I can't find the exact cite. What you seem to be saying is that 30 years ago, they were paying an even greater share than the large share they pay today. Is that true?
Jun 26, '08
Ooops, wrong Chuck. Sorry, Mrs. Nation ... er, Mr. Chisolm. And sorry to Mr. Sheketoff too.
Jun 26, '08
It's amazing the ideological blinders worn by the right wingers who detest the New Deal.
Let's see: New Deal enacted in 1930s is followed by broadly shared prosperity of 1940s to 1970s. (Arguably, America's Golden Age).
In the 1980s, the right wingers take over and begin dismantling, bit by bit, the New Deal. Result: by 2005, income inequality has regressed to the times before the Great Depression. And the middle class is seriously squeezed.
It's that simple, and ideology can't change the facts.
Jun 26, '08
It's that simple, and ideology can't change the facts.
SJ,
You missed several critical factors about the Right Wing.
They have an alternative set of 'facts' that are coincidentally self-serving, despite being wrong. They have their own 'science' that is coincidentally self-serving, despite being wrong. They have their own 'math' that is coincidentally self-serving, despite being wrong. They have their own 'intelligence' that is coincidentally self-serving, despite being wrong.
It has been a good eight years, hasn't it?
1:06 p.m.
Jun 26, '08
Actually Jeff it was JFK who first lowered the highest marginal rates, from (Republican president) Eisenhower's 90% to something like 60% if memory serves. This is a big supply-sider talking point btw. But note the absolute levels.
I thought Dulcinea's point was a hoot. It wasn't the New Deal, it was World War II and the G.I. Bill. Quite right in terms of actually breaking the back of the Depression, though it began with Lend-Lease military spending in 1940. Now let's see, how did this work? First, we engage in completely unlimited deficit spending for total war and a full employment policy that brought millions into the labor market who had never been there before, with cost-plus military contracting, but wage and price controls and rationing to try to control inflation and black markets, for war production, along with no-strike pledges from labor and cartelization and government production standardization making the NRA look like a small-town chamber of commerce.
Then, after the war, we lower but don't eliminate the deficit spending, partly by jacking up the highest marginal tax rates and corporate taxes, provide free higher education and massive housing subsidies to millions of families, finish New Deal rural electrification, and back up the expanded organizing of industrial trade unions to cover 1/3 of the workforce, with the clout to demand from employers and get high enough wages to buy the consumer goods to which war industry factories had switched back to producing.
Yup, definitely a victory of the free market over the socialist New Deal. Sounds like a great approach to try again, maybe absent a few of the more extreme total war measures. Since Dulcinea's on board already, maybe she can bring along a few of her friends?
Oh, and after that, let's not forget the Interstate Highway System. Pretty amazing how the invisible hand engineered that investment.
The idea that Bonneville Dam and Timberline Lodge are comparable is pretty dam' funny, if you ask me. Wonder what Alcoa would have said about that, ca. 1950?
Kari, Iraq wasn't the first appearance of the magic hat. Remember the Savings & Loan "episode," shall we say, yet another triumph of deregulation? Total tranfer of public revenues to private hands was ca. $400 billion, I think. And that was 1980s dollars. And like Iraq, all off-budget.
Robert Heilbroner quite some time ago argued that the U.S. should do as many lower level government units and major companies do, which is split an operating budget from a capital budget that would focus on infrastructure, and would allow different ways of raising revenue for different purposes.
Isn't it cute to watch them try to change the definition of socialism, btw? Wonder when the memo went out from ideological central command?
1:08 p.m.
Jun 26, '08
Kari, it seems as if TypePad doesn't like it when we talk about economics. I am mystified by why something I tried to post was blocked.
3:03 p.m.
Jun 26, '08
There is little doubt that incomes are more unequal now than they were during the 1940s-1960s. Anyone seriously interested in these issues should take a look at http://lanekenworthy.net/this is Consider the Evidence, which is highly competent and scrupulously balanced as well as liberal.
How much more unequal and why are still contentious issues, but important ones if they are to be effectively addressed.
For example, why did the top 1%’s share of total income fall in the US and the other English speaking (AS) countries during the 30s and 40s, stabilize in the 50s, 60s and 70s, and increase during the 80s and 90s? Why don’t we see the same peaks and valleys in other rich countries?
That we see this pattern clearly only when we use taxable-income to estimate the top 1%’s share of total income, and not when we look at consumption, or even changes in the distribution of total wealth, suggests a possibility that deserves a closer look: high marginal taxes greatly reduce reported incomes; the effect goes away when marginal tax rates are dramatically reduced (as they have been in the AS countries since 1980). That is, high marginal tax rates cause people with very high incomes to find ways to under “report” incomes to avoid or evade tax liabilities; they may even cause some people to earn less (Laffer effect). In other words, we are talking about reporting, at least in part, not necessarily reality, at least not entirely.
High marginal tax rates also discourage risky investments. So financial sweepstakes markets tend to gravitate to places with low marginal tax rates, as does participation in those sweepstakes markets. The upshot is that those markets come to play a much bigger role in economies with low marginal tax rates than with high ones. (One could test this hunch by looking at the covariance between GDP, government revenue, and relevant market indices – since this would be easy to do, I assume someone already has). In any case, I still find Tim Worstall’s explanation for fluctuations in the income shares of the top 1 percent in the Piketty-Saez calculations for the US plausible. Those guys are the lucky winners in the financial market sweepstakes (where the top 25 hedge fund managers report more income than the top 500 executives). If one scales the DJA by an index of nominal GDP, it tracks the peaks and valleys before the 1940s and after the 1970s very, very well, although not the 30-year period in the middle when marginal income tax rates were high in the US (>70%).
The bottom line is that these effects (top 1%) are largely driven by differences in tax systems. The corollary is that they may not matter very much. There is also the question of whether having financial sweepstakes markets play a major role in the economy is a good thing or not?
As for the consensus on the New Deal among economic historians about its effects on the duration and intensity of the depression, many if not most would agree that its policies probably did marginally more harm than good. That they weren't as bad as Hoover's. That they did a lot to soften the effects of the depression, especially for many of those who were most at risk, and provided a lot of very valuable public infrastructure. Most would also say that the New Deal programs per se were pretty unimportant to the duration and intensity of the depression. The keys to the depth and length of depression were the contraction of the money supply and the reluctance of Congress/President to run sufficient deficits or to guarantee state and local debt.
3:11 p.m.
Jun 26, '08
Sorry I meant to post the following URL:
Consider the Evidence
Jun 27, '08
Fred T: One the one hand you acknowledge that there's more (i'd say way more) income inequality than before. Yet then you seem to suggest -- sorry, your post is rather dense at times -- that it's really just a result of high-income earners underreporting income. It "may not matter very much," you say.
Am I reading you correctly? And if so, what are you smoking? (Answer: whatever Laffer was smoking)
The income inquality that has returned to this country doesn't live in just in IRS tax forms. Go out and see the world and how American families are struggling.
Jun 27, '08
Correction on my post above: first paragraph should read "it's really just a result of high-income earners reporting more income because tax rates are now lower"
10:34 a.m.
Jun 27, '08
Dulcinea is a hoot. She says the New Deal was "socialist" & therefore can't have ended the Depression, instead it was World War II and the G.I. Bill. In terms of really breaking the back of the Depression, she's right, along with the success of the industrial trade union movement in raising postwar wages and living standards. But lets think about that a minute. World War II was hardly run on free market principles, and certainly not balanced budget ones. And the G.I. Bill? Massive subsidies transferring wealth from the rich to the working classes for higher ed and housing. Gotta love that invisible hand.
Miles, you and Jeff are talking past one another a bit, I think. I've heard what Jeff writes frequently, and it is a point simply about the distribution of taxation across income classes, not about the overall level of taxation relative to income. What you describe produces what Jeff describes, within a shrunken overall tax burden.
Plus a huge amount of debt & interest fobbed off on our old ages, our kids and grandkids, of course, going mostly to high-enders in the financial sector or foreign government creditors.
10:36 a.m.
Jun 27, '08
This spam filter is really annoying. There is no reason why what I've been trying to write shouldn't be allowed. Will the new version of BlueOregon give the owners more control of the filter?
Jun 27, '08
Chris Lowe - that's what happens when you mess with UPO!
12:00 p.m.
Jun 27, '08
UPO,
They can also read Hofstadter's profile of FDR in "The American Political Tradition."
I love the work Chuck is doing, but I have to agree with the other commenters: this posting is simply not historically accurate. There is broad consensus in the economics community that WWII, not the New Deal, pulled this country out of the Depression and created the American middle class.
UPO's comment here Jun 26, 2008 10:14:49 AM nails the policy question precisely. Income inequality is a bad thing for many reasons, but to compare the situation of today's working class and poor to that the Depression is not just inaccurate, it leads us to bad policy making.
I give no more credibility to flat earther conservatives than I do to flat earth liberals, who compare economics to aromatherapy or credit a half century of economic growth to the New Deal while conveniently ignoring a world war.
12:34 p.m.
Jun 27, '08
SJ: Yes, I am saying the increase in the top 1%’s share of total income is partly a "result of high-income earners reporting more income because [marginal] tax rates are now lower" I think it is probable that they are also choosing to make more money for the same reason. What matters to people is their after-tax, not their pre-tax income. High marginal tax rates make tax-sheltered investments attractive, despite low pre-tax payoffs. They also make high-risk (high volatility) investments unattractive, despite much higher pre-tax returns.
One very powerful piece of evidence supporting the second hypothesis is that income volatility has greatly increased for the top 1% of income earners in the last 30 years.
Jun 27, '08
Fred, Correct me if I'm wrong, but it sounds to me like you're saying that the idea that income inequality has greatly increased is really just an illusion -- high income earners today are simply "reporting" more income that before they were hiding from the IRS.
If that's what your claiming, it really just goes to show how economic "truths" bandied about have very little relation to the real world.
In any event, very wealthy individuals continue to stash away gobbles of money in the Cayman Island and all the other tax havens out there, despite the lower tax rates today. Don't you agree?
2:49 p.m.
Jun 27, '08
Chris Lowe... I'm digging out your comments. And yes, the new system will have a MUCH better spam filter.
3:55 p.m.
Jun 27, '08
I give no more credibility to flat earther conservatives than I do to flat earth liberals, who compare economics to aromatherapy or credit a half century of economic growth to the New Deal while conveniently ignoring a world war.
I'm totally with you Paul that it was the war that was the main driver of recovery. That has been my view for years.
Now let's talk "hard science". When you refer to psychology, economics, political science, polling, and a lot of other so-called scientific endeavours, you have som many variables that other "scientists" in you field cannot with any degree of accuracy duplicate your results.
Dropping two rough lead spheres of differing sizes from a shot tower, or dropping a sphere and a feather can demonstrate how gravity functions if you control for a single variable--wind resistance. Anyone can duplicate the experiment anywhere on earth and get results that are explainable.
You cannot do this with a host of so-called sciences that need to factor human behavior individually and in the aggregate. That's why economics is not yet definable as science.
It's also true that long established systems like double entry bookeeping are totally predictable, but those are subcategories, i.e. bookkeeping, accounting, and so on.
You can get some predictability within a range, making economics an extension of game or maybe chaos theory. Furthurmore, there is not even rough consensus among economists on a host of issues that need to be sorted out.
Jun 27, '08
As we can see from the Shrub years, there can be economic growth that does not contribute to growth of the the middle class. New Deal programs like social security have continued to promote middle class stability through all sorts of economic conditions. Controls on business activity instituted under FDR served us well during the growth of the 50's and 60's. Much of that was dismantled under Reagan and the Bushes, but social security is mostly intact for the present.
Conservatives seem to either believe the fable of trickle down economics or just not give a damn when a few control much of the wealth while many live in abject poverty. In other words, there are deluded conservatives and heartless conservatives. The only good conservative is a former conservative.
Jun 27, '08
A bulletin from the memory hole:
"[Jimmy] Carter, despite a few gestures toward black people and the poor, despite talk of 'human rights' abroad, remained within the historic political boundaries of the American system, protecting corporate wealth and power, maintaining a huge military machine that drained the national wealth, allying the United States with right-wing tyrannies abroad...
"Under Carter, the United States continued to support, all over the world, regimes that engaged in imprisonment of dissenters, torture, and mass murder: in the Philippines, in Iran, in Nicaragua, and in Indonesia, where the inhabitants of East Timor were being annihilated in a campaign bordering on genocide...
"Carter approved tax 'reforms' which benefited mainly the corporations...
"He became an advocate of removing regulations on corporations and giving them more leeway, even if this was hurtful to labor and to consumers. Environmental regulation became more and more a victim of 'cost- benefit' analysis, in which regulations protecting the health and safety of the public became secondary to how costly this would be for business." (Howard Zinn, Carter-Reagan-Bush: The Bipartisan Consensus)
"[Bill] Clinton was willing to recall King's 'dream' of racial equality, but not his dream of a society rejecting violence. Even though the Soviet Union was no longer a military threat, he insisted that the United States must keep its armed forces dispersed around the globe, prepare for 'two regional wars,' and continue the military budget at cold war levels...
"...in the two appointments he made to the Supreme Court, [he made] sure that Ruth Bader Ginsburg and Stephen Breyer would be moderate enough to be acceptable to Republicans as well as to Democrats...Breyer and Ginsburg both defended the constitutionality of capital punishment, and upheld drastic restrictions on the use of habeas corpus. Both voted with the most conservative judges on the Court to uphold the "constitutional right" of Boston's St. Patrick's Day parade organizers to exclude gay marchers...In choosing judges for the lower federal courts, Clinton showed himself no more likely to appoint liberals than the Republican Gerald Ford had in the seventies. According to a three-year study published in the Fordham Law Review in early 1996, Clinton's appointments made "liberal" decisions in less than half their cases...
"Both major political parties joined to pass legislation, which Clinton then signed, to remove welfare benefits (food stamps, payments to elderly and disabled people) from not only illegal but legal immigrants...
"In early 1996, the Congress and the President joined to pass an "Anti-Terrorism and Effective Death Penalty Act," allowing deportation of any immigrant ever convicted of a crime, no matter how long ago or how serious. Lawful permanent residents who had married Americans and now had children were not exempt...
"The Personal Responsibility and Work Opportunity Reconciliation Act of 1996" aimed to force poor families receiving federal cash benefits (many of them single mothers with children) to go to work, by cutting off their benefits after two years, limiting lifetime benefits to five years, and allowing people without children to get food stamps for only three months in any three-year period...What the Clinton administration steadfastly refused to do was to establish government programs to create jobs, as had been done in the New Deal era...
"Clinton and the Republicans, in joining against "big government," were aiming only at social services. The other manifestations of big government-huge contracts to military contractors and generous subsidies to corporations-continued at exorbitant levels...
"Clinton reappointed Alan Greenspan as head of the Federal Reserve System, which regulated interest rates. Greenspan's chief concern was to avoid "inflation," which bondholders did not want because it would reduce their profits. His financial constituency saw higher wages for workers as producing inflation and worried that if there was not enough unemployment, wages might rise...
"Reduction of the annual deficit in order to achieve a "balanced budget" became an obsession of the Clinton administration. But since Clinton did not want to raise taxes on the wealthy, or to cut funds for the military, the only alternative was to sacrifice the poor, the children, the aged-to spend less for health care, for food stamps, for education, for single mothers...
"Under Reagan, the government had reduced the number of housing units getting subsidies from 400,000 to 40,000; in the Clinton administration the program ended altogether...
"[By] 1996, the United States was spending more money on the military than the rest of the world combined-four times as much as Russia, eight times as much as China, forty times as much as North Korea, eighty times as much as Iraq. It was a bizarre waste of the nation's wealth... (Howard Zinn: The Clinton Presidency and the Crisis of Democracy)
7:36 p.m.
Jun 27, '08
SJ wrote: Correct me if I'm wrong, but it sounds to me like you're saying that the idea that income inequality has greatly increased is really just an illusion -- high income earners today are simply "reporting" more income that before they were hiding from the IRS.
If that's what you're claiming, it really just goes to show how economic "truths" bandied about have very little relation to the real world.
In any event, very wealthy individuals continue to stash away gobbles of money in the Cayman Island and all the other tax havens out there, despite the lower tax rates today. Don't you agree?
No, I am not saying that "high income earners today are simply "reporting" more income that before they were hiding from the IRS." That implies tax evasion, which is illegal, rather than tax avoidance, which is not. But I do think that some of the reported growth in income inequality is illusionary, otherwise the absence of comparable growth in wealth or consumption inequality would be very hard to explain. I am also saying that low marginal rates probably cause rich people to make higher risk, higher return investments, which would be consistent with increased income inequality, both pre and post tax (when was the last time you heard someone talking about tax shelters?) however, it isn't obvious that. if this were true, it would necessarily be a bad thing.
Do rich individuals sock a lot of cash away in foreign tax havens? Ultimately, this comes down to what do you mean by a lot. But probably not, if the cash was legally earned. Holding, euro-dollars in foreign tax havens isn't all that profitable. Besides, if you really want to avoid paying personal income taxes, you can buy Oregon State bonds, which are double tax exempt. It is my understanding that the Caymans and their ilk are primarily corporate tax havens, not individual tax havens.
Jun 28, '08
Jeff writes: "But let's be clear: in the past 30 years, the US has decided to radically change the way it raises revenue, shifting the burden away from the wealthy and toward the middle class."
It appears that Jeff is confusing tax rates and taxes paid. In 1980, the highest marginal personal income tax rate was 70%. In 2004, the highest rate had been cut in half to 35%.
According to the Department of the Treasury, in 1980, the top 1% paid 19% of the total income taxes. This increased to 25% in 1990, 31.6% in 1996, 37% in 2000, 35.6% in 2004, and 39% in 2005. So between 1980 and 2005, the percentage of total income taxes paid by the top 1% more than doubled.
Between 1996 and 2004, the percentage of total income taxes paid by the botton 50% declined from 4.4% to 3.4%.
So Jeff, how exactly is it that the tax burden is being shifted away from the wealthy toward the middle class?
6:53 p.m.
Jun 29, '08
A previous commenter whose name evidently was the reason my posts got blocked was making the World War II argument as a market argument against New Deal "socialism."
Let's be clear then: World War II was not a free-market operation, but a huge exercise in military Keynesianism and national government planning, including rationing, wage and price controls, "voluntary" no-strike pledges by industrial unions, big business coordination and cartelization that made the National Recovery Administration look like the monthly meeting of the Rotary Club at Country Bill's Restaurant on SE Woodstock Blvd. in my neighborhood.
That commenter likewise and correctly cited the G.I. Bill (free higher education for millions of veterans) and Veterans' Housing acts (backed by conservatives like Robert Taft) as important elements in the conversion of that wartime recovery to a civilian basis. So to was the power of the new CIO industrial unions and expanded AFL competitors, backed by law and policy, to demand and gain unprecedentedly high wages, the basis of civilian Keynesianism -- though federal military spending and production and dual use federal infrastructure investment like the Interstate Highway System continued to play an important role. Top marginal tax rates under Eisenhower were 90%.
<h2>In other words, the peak period for economic expansion on a broad basis (late '40s to late '60s) corresponded to the period in which the economy was most "mixed" with extensive government involvement, and the peak period of trade union density and power.</h2>