More Pitchforks Please

by publius

A few days ago, a commenter argued that I should stop accusing Republicans of acting in bad faith on economic matters.  Instead, I should realize that most conservatives sincerely prefer these policies because they think the policies will ultimately help the country.  I’ve been thinking more about it, so here are some additional reasons why I'm still having trouble respecting these arguments.

In last Sunday’s Post, Robert Reich provided a fairly staggering example of extreme wealth concentration.  Currently, the top 1% of the country possesses 20% of the nation’s wealth income.  (Q.  Last time that happened?  A.  1928).  The top 10% possesses a full half of national income.  There's even a handy chart from the NYT.

A few thoughts on this:  First, what really bothers me is that many rank-and-file conservatives fail to acknowledge that their policy preferences lead – in the real world – to massive wealth consolidation.  It’s all fine and good to say people spend their money best, and regulations are harmful – in many instances, I fully agree.

But we can’t pretend that millionaires are in the same position as people who make $50,000.  They’re not.  There are of course different ways to write a tax cut -- and different groups to target.  But by some weird coincidence, the GOP's preferred tax cuts always seem to concentrate wealth for the uber-rich.  (If you want to cut payroll taxes for poor people, well buddy, that's just a tax cut too far).  I suppose this sounds harsh, but much of the GOP’s tax policies are simply a mirage – wealth redistribution to the very top cloaked in populist language.

The first problem then is that even well-meaning conservatives aren’t acknowledging the reality their economic policies create.

Others, however, are fully aware of the consequences and honestly think that wealth concentration is a good thing – either as a matter of fairness, or because of some “trickle down” theory.  I can’t really speak to fairness, though it's hard to call any policy "fair" that allows 1% of the population to keep 20% of the wealth while poorer people go without health care and decent schools.

But what’s infuriating is how poorly the trickle down theories have performed in practice.  It's not like this is an abstract debate.  We’ve seen what happens when we consolidate wealth – and it’s not good.  Overall demand drops.  The rich blow their money on stupid, externality-creating Ponzi schemes. 

That's why it's better to try trickle-UP theories, where the money being hoarded at the top is instead used to lift wages, make investments, and help the country as a whole.

In short, it’s just hard to take any of the GOP tax and spending positions seriously as a policy matter – though we have to take them seriously as a political matter because they've become accepted dogma among the institutional GOP players and their media arms. 

I mean, here we are -- quite literally standing on the brink of economic catastrophe -- and all they can push for is more tax cuts for rich people.  And God forbid we build things the public needs rather than taking that money and giving it to Wall Street.  It doesn’t matter how many millions are unemployed, or how wretched our infrastructure has become, the real problem in America is that rich people don’t have enough money.

The Democrats need to get louder about what is happening -- and about where the GOP priorities are in the stimulus debate.  Whether conservatives intend it or not (some do, some don’t), the Republicans are fighting to redistribute more money to the very rich – it’s as if the last 5 years never happened. 

And it’s all they ever fight for – and, in practice – it’s all they really care about.

Comments

[Ugh]

In last Sunday’s Post, Robert Reich provided a fairly staggering example of extreme wealth concentration. Currently, the top 1% of the country possesses 20% of the nation’s wealth. (Q. Last time that happened? A. 1928). The top 10% possesses a full half of national income. There's even a handy chart from the NYT.

I don't see wealth mentioned in either Reich's Op-Ed or the NYtimes article.

[Madrocketscientist]

From an email I got from Downsize DC

The Democrats sneer at Republican proposals to cut upper-bracket tax rates. They call it trickle-down economics. But the Democrat's stimulus plan is trickle-down economics too.

Much of the spending will go to huge institutions like construction companies and research firms. It will have to trickle-down from there to the rest of us.

When Democratic politicians talk about the "multiplier effect" of government spending, what they're really saying is "I believe in trickle-down economics."

The Republicans are just as bad. They may like tax cuts, but they also run huge deficits. The money they borrow can't be used by businesses to expand production and hiring. The Republicans negate the economic benefit of their tax cuts through the economic harm of their borrowing.

When Republican politicians say "deficits don't matter," as they constantly do, what they're really saying is "the benefits of deficit spending will trickle-down to the taxpayers."

Both parties believe in trickle-down economics. Both parties think they can cut off one end of the economic rug, sew it to the other end, and the rug will be longer.

[Warren Terra]

And, of course, the Heritage Foundation's own summary of their own stimulus plan unashamedly states that

The centerpiece of an effective stimulus policy should involve two elements:

1. Extend the 2001 and 2003 tax reductions for as long as possible--certainly through at least 2013 to prevent a tax increase. Better yet, make the tax reductions permanent; and

2. Reduce tax rates on individuals, small businesses, and corporations through 2013 by lowering the top rate by 10 percentage points and reducing rates by similar amounts for lower income level taxpayers.

So, that's long-term tax relief for the wealthy topped of with a slashing reduction on the top marginal tax rate, affecting the wealthy - all to achieve stimulus.

Now, most sane people would think that the way to achieve stimulus is with short-term money given to poorer people, who are more likely to need it and to spend it. But most sane people aren't working for the Heritage Foundation - or vice versa.

[Ugh]

Is there a list somewhere that someone can't point me to of which think tanks are clown shoes and which think tanks actually do decent work?

[Hogan]

But the Democrat's stimulus plan is trickle-down economics too.

Much of the spending will go to huge institutions like construction companies and research firms. It will have to trickle-down from there to the rest of us.

Tax cut = "Here's some money. Spend it, save it, bet it at the dog track, set it on fire, we don't care."

Spending = "We're hiring you to get something built. Here's some money to pay the people who build it."

Not quite the same thing.

[Warren Terra]

Ugh, what would be the point of a list someone can't point you to?

[Ugh]

Bah! Stupid typos.

[Sebastian]

You may not realize it, but this graph almost contradicts your other recent posts flat out.

The main reason Democrats look good compared to Republicans on the economy in general is Clinton. He had the advantages of an ending cold war and the dot.com bubble. But let's say he really hit economic gold purely based on great policies (and they weren't bad really, though you don't even like some of the most successful ones [NAFTA and welfare reform especially])

But inequality on your graph does what under Clinton's regime???

Look at the peak under Clinton. It is only just shy of the amount that sets off: "A few thoughts on this: First, what really bothers me is that many rank-and-file conservatives fail to acknowledge that their policy preferences lead – in the real world – to massive wealth consolidation."

Do you believe that Clinton's apparent economic success is important to your other arguments? If so, do you think this bears on it? If not, why not?

[Eric Martin]

Ug, a very partial list off the top of me head.

Good:

-The Center for American Progress
-The New America Foundation
-The Century Foundation
-Carnegie Endowment for International Peace
-International Crisis Group
-Chatham House
-Center for Strategic and International Studies
-Rockridge
-US Institute of Peace
-Jamestown Foundation

Depends:

-Council on Foreign Relations
-Stratfor
-Brookings
-Cato
-RAND

Clown Shoes, Inc.:

-American Enterprise Institute
-Heritage
-Hudson
-Manhattan Institute

[Phil]

lol at Sebastian berating publius for some sort of Clenis-related point-missing while failing to see the possible connection between "successful" welfare reform and a peak in income inequality.

[Sebastian]

As for welfare reform, I'm pretty sure that an argument could be made that there should be one welfare system for the normal economy (which deals with the incentive sapping portion of welfare reform) and another for once ever 60 years Depression-style events.

I suspect that designing everything as if the economy were in constant Depression might make for bad policy most of the time, but your mileage may vary. But thanks for your charitable interpretation.

[ThatLeftTurnInABQ]

But inequality on your graph does what under Clinton's regime???

If we judge a particular President's commitment to fiscal conservative policy in terms of the Federal budget deficit under his admin., then I think it would be fair to say that GHB and Clinton were fiscal conservatives (or at least were closer to that that their peer group average), and Reagan + GWB were not. That seems to me to be better ground for evaluating claims regarding economic policy than the partisan affiliation of said President.

Also, it looks to me like the inflection points in long term secular trends on that 1 percent - 90th percent graph are at 1940 and 1980, give or take a year, with a very noticeable deviation from 2000-2004.

I wonder if the latter is a function of the collapse of the DotCom bubble in equities - the top 1 percent were more likely to have lost large amounts of wealth as a result of that event, superimposed on the broader effects of the low interest rate climate (the Greenspan-Bernanke bubble)? This created a short term shift in income distribution out of dividends returned from equity and into wages, which was reversed as stocks rebounded.

[Sebastian]

"...then I think it would be fair to say that GHB and Clinton were fiscal conservatives (or at least were closer to that that their peer group average), and Reagan + GWB were not. That seems to me to be better ground for evaluating claims regarding economic policy than the partisan affiliation of said President."

That is fine, but causes problems for publius in recent posts because he wants to attribute economic success to 'Democratic' policy but the statistical evidence for that success is almost entirely derived from Clinton. So there is incredible tension between his nasty social conservative meanies post here and his conservative economic policies are a failure posts of late.

[publius]

seb - don't have time to address at length, but a couple of points.

1 - I'm not only relying on Clinton -- not even close. Go back to my earlier post and you'll see a cite links to Democratic administrations over course of century.

2 - I wasn't real thrilled with income consolidation under Clinton, but there was the bubble. Note too though that Clinton raised taxes on the rich and it hardly destroyed the economy. More likely, that chart would have shot up a lot more in the midst of hte bubble but for Clinton's fairly modest tax increases at top (frankly, I'd push for much muhc higher rates on the top 1%)

[Tony P.]

Look at the peak under Clinton.

Yes. Clinton's presidency was apparently very good for the very rich -- contrary to the howling, barking, predictions of doom by the GOP when Clinton pushed his first budget through the Congress with not a single Republican vote.

Republicans proved, back then, that their ideology blinds them to what will benefit their own patrons, let alone what will benefit the rest of us. I say "blinds" in the present tense, for I do not notice the GOP's ideology having changed much since then.

--TP

[publius]

I think that most telling part of hte chart is that some drastic change occurred around 1980 after decades of strong wages and relative equality. I forget what happened that year though.

[Sebastian]

"I'm not only relying on Clinton -- not even close. Go back to my earlier post and you'll see a cite links to Democratic administrations over course of century."

Yes you cite them, but to get statistically interesting results from Presidents with (D) as their party affiliation as opposed to Republicans you have to include Clinton.

And since your whole point is the success of Democrats Presidents vs. Republican ones, you have to include Clinton.

Now I would personally argue that measuring it from Presidents is a bad way of doing it because they don't have nearly as much control over the economy as seems to be popularly believed. And if you insist on analyzing them by President, it isn't clear that a sorting system which includes the economic policies such that it assumes that Clinton and Johnson and Truman all belong in one basket while Bush I and Nixon and Eisenhower belong in the other makes any sense at all.

But if you insist on such a thing, your results aren't particularly interesting unless you include Clinton. Exclude him and you are right on the edge of statistical insignificance.

[Dave C (the uppity newcomer)]

Publius - Obviously it was the release of "The Empire Strikes Back" and the revelation that Darth Vader was Luke's father that depressed working folks to such a degree that they were no longer able to live up to their full economic potential.

[Phil]

As for welfare reform, I'm pretty sure that an argument could be made that there should be one welfare system for the normal economy (which deals with the incentive sapping portion of welfare reform)

Which is what, exactly?

But thanks for your charitable interpretation.

You're welcome!

In any case, think there's any connection there between that welfare reform and income inequality? You're sure doing a lot of criticism here without showing any, you know, math.

[C.S.]

Sebastian, you're just being deliberately silly. Do you actually have a point? Do you think -- contra publius -- that GOP legislators do negotiate in good faith? Or is it more that you just like that little thrill you get up your leg when you laser in on Clinton to the exclusion of all else?

[Phil]

But yeah, the D vs. R theories aside, the elephant in the room is that the upward trend in inequality and wealth consolidation appears to have begun right around the time Reagan slashed the top marginal rate. Which, given the graph, leads me to believe that one of the healthiest things we can do to reduce inequality and consolidation is have a top rate above 70%.

[Bellwetherman]

The first problem then is that even well-meaning conservatives aren’t acknowledging the reality their economic policies create.

No, they're pretty quiet about that, but not because they're dishonest. It's more a matter of simple political survival.

Others, however, are fully aware of the consequences and honestly think that wealth concentration is a good thing – either as a matter of fairness, or because of some 'trickle down' theory.

And a significant number of conservatives simply believe that the already wealthy are simply more deserving.

[publius]

reagan increased inequality both pre- and post-tax. Post-tax, he obviously slashed rates. But pre-tax, he went on a jihad against unions, which is one of the biggest structural protections of strong wages. and that's why the efca should pass -- the country needs stronger unions

[Sebastian]

"In any case, think there's any connection there between that welfare reform and income inequality?"

No. Do you think such a thing? It almost can't because the amounts of money we are talking about are so vast on the rich side. Which may very well be a bad thing, but says precisely nothing about the wisdom of the welfare reform.

"As for welfare reform, I'm pretty sure that an argument could be made that there should be one welfare system for the normal economy (which deals with the incentive sapping portion of welfare reform)

Which is what, exactly?"

See the later work of Democrat, Daniel Patrick Moynihan.

"Or is it more that you just like that little thrill you get up your leg when you laser in on Clinton to the exclusion of all else?"

Sheesh, I just can't win. I put up complimentary things about Clinton and I still get slammed.

[ThatLeftTurnInABQ]

That is fine, but causes problems for publius in recent posts because he wants to attribute economic success to 'Democratic' policy but the statistical evidence for that success is almost entirely derived from Clinton.

Understood. I'm sort of stuck in the middle on this argument.

IMHO much of the overall expansion of the economy under Clinton was due to a combination of getting the Fed. budget deficit down (a joint achievment shared by GHB and Clinton), the post-Cold War peace dividend, and the inflationary effects of Greenspan's monetary policy. The 2nd of these was a one time event and the 3rd was not sustainable as we have now discovered.

This leaves me wondering how durable the Clinton expansion was in the long run, something which is most noticeable if you look at which sectors of the economy expanded - IIRC much (perhaps close to half) of the Clinton expansion occured in the FIRE sector rather than in manufacturing or agriculture or non-FIRE services.

Superimposed on that is the contrast between successive admins (e.g. Clinton and Bush 43) with regard to how progressive the tax structure has been, as well as other events like the collapse of the DotCom bubble, the Mortgage bubble, etc, and long term secular changes like the conversion of most of the middle class into 2-wage earning income households (another one time event that can't be repeated), and dramatic swings in energy pricing from the 1970s to present.

So there are really two arguments here, one over what grows the overall size of the economy, and a second argument over how the fruits of that growth are distributed.

And on the policy side we need to disentangle various ideas, such as what sort of monetary policy mandate the Fed should have, how steep should our progressive tax curve be, what should overall taxation rates be, whether the Fed. budget should be balanced or not and when, and which sectors of the economy should be favored by our (implicit or explicit) industrial policy. With regard the last question, IMHO we have always had an industrial policy, it is just that recently as it has tilted in favor of FIRE great effort has been expended in trying to pretend that this was a laissez faire policy. It wasn't; it was a pro-FIRE policy in disguise.

These policy variable should be independent of one another; to the extent that they aren't or haven't been, that is due to the poverty of our political vocabularies.

Now it seems to me that in terms of evaluating policy this is a hopelessly tangled mess, especially when you throw in lag time effects and then try to divide the responsibility for economic policy choices between Congress, the President, the Fed, large private sector actors who can affect policy (e.g. the investment banks), and offshore actors (e.g. the PBoC and the BOJ, SWF's etc.). Combine that with the small number of macro-level data points (we are arguing here over only a couple of decades worth of stats) vs. the large number of policy variables at play, and I don't see a starkly empirical basis for correlating policy choice X with economic result Y. Instead we are thrown back on theoretical models, which is why the Keynesians and the Austrians are still going at it.

On theoretical grounds I favor a much more steeply progressive tax structure than we have now, a balanced federal budget under normal circumstances (i.e. not during a depression), and a Fed with a policy mandate to support stability of asset pricing in addition to wage/price level stability (i.e. very mild inflation and no more Greenspan asset price bubbles), but I'm not going to go data-mining the Clinton years in support of those policies. IMHO the Truman-Eisenhower-Kennedy admins provide better empirical support for these ideas (note the long stable plateau from roughly 1945-1970 on that graph), but YMMV.

[Phil]

Just for fun, here is the graph in publius's original post with the top marginal tax rate over the same period superimposed.

[Slartibartfast]

the elephant in the room is that the upward trend in inequality and wealth consolidation appears to have begun right around the time Reagan slashed the top marginal rate

Which time? He cut it to 38.5 percent in 1987, and look what happened.

After, therefore because of?

[Phil]

No. Do you think such a thing?

Well, I don't know, or I wouldn't have asked. But given the time period we're talking about it seems worth being inquisitive about, don't you think?

It almost can't because the amounts of money we are talking about are so vast on the rich side.

I'm not sure what "almost" is supposed to mean here, but we're talking about percentages and not quantities. And in either case, it might not matter, since their could be a causal relationship aside from direct wealth transfer upward. You just seem awfully incurious about it either way.

See the later work of Democrat, Daniel Patrick Moynihan.

Let's pretend I don't have time to do homework, and you can summarize for me.

[Phil]

Which time? He cut it to 38.5 percent in 1987, and look what happened.

Can you be more specific?

After, therefore because of?

Let's all find out!

[Ugh]

I'm still confused because Publius is conflating wealth and income in his post, so I don't know who to attack with my lame snarky comments. Meh, let's see:

The increase in income inequality during the Clinton years is due to the rise in equity prices during that time, plus cuts in cap gains rates (continued by Bush). While alot of equities are held by pension funds, 401Ks, etc., they are not held in concentrated bits like, e.g., Bill Gates holdings of Microsoft stock. Plus, the dot.com bubble led to insane IPOs where Drkoop.com was valued more than GE at one point (tho I may be exaggerating on that). Lots of people could sell their holdings, realizing lots of gains, and show up in the inequality statistics.

Same thing with Bush, eventually. The dot.com bubble exploded and then was stomped on by 9/11, so inequality went down in 01, 02, 03, then as the market recovered it went back up. Plus the assist from further capital gains cuts started by Clinton.

[Slartibartfast]

"Can you be more specific?"

Yes. There's this flat spot in the income growth curve that coincides with that rate cut.

[publius]

ugh - fixed. wealth is even worse as i understand (i.e, even more concentrated)

[d'd'd'dave]

The first chart shows income distribution not wealth distribution. The two are different. Income is what you earn in a year. Wealth is the accumulated excess of income over expenditures for your whole life up to the measurement date. I believe wealth is even more skewed in favor of the rich than the chart shows. Leaving that distinction aside i'll use the term income from here on.

Most people are in a position of wanting more income so they can buy something which, in their view, will raise their standard of living. The thing they buy may be an object or leisure time or just money in the bank for peace of mind. The something is different for everyone and the cost is different for everyone.

A steady increase in ones standard of living such that you are able to set and reach new targets while maintaining the old ones is in my view desirable. Above a certain minimum the absolute value of the $ figure is not as important as the trend. How much income a person has compared to another is not as important as whether each person has enough.

The first chart shows how people compare to each other over time rather than to what extent each strata improved over time. In theory, if everyone reaches their target, it shouldn't matter that one person meets his target plus $N while the others meet their target plus $zero.

The fact in america is that the pie keeps growing. Yes, from time to time different sectors of the economy grow faster than others. Sometimes sectors shrink (except the public sector). But on a macro level It is not a question of dividing a static pie equally.

For this reason your term "wealth consolidation" strikes me as misleading. On a macro level it is not as if one takes wealth from others and adds it to his own pile (therefore consolidating wealth). It is that the wealth of one grows faster than the wealth of another.

What is enough? Do all people have enough? Is the overall percentage of people who have more than enough increasing over time? These questions are far more important than what the absolute wealth distribution is. None of these questions are answered by these charts.

Proponents of tax cuts have generally argued that it grows the whole pie faster thereby moving all levels forward faster than they would've been moved otherwise. They do not claim to move all strata at the same rate. [Whether they are correct or not is something to discuss] To measure the success of growing the whole pie by recourse to a chart of distribution within the pie is not useful.

[d'd'd'dave]

Tax rate cuts grow the pie or they don't. If they grow the pie then they do not redistribute wealth in the sense of taking from one to give to another. They give to all though perhaps at different rates. If tax rate cuts do not grow the pie then they do redistribute in the sense that they take from one to give to another.

The better question is: Do tax rate cuts grow the pie?

[Ugh]

ugh - fixed. wealth is even worse as i understand (i.e, even more concentrated)

Yes that's probably right but there is less and less accurate data on wealth, which can be more ephemeral than income (at least as reported annually to the IRS). But the post continues to cite income statistics while it is mostly focused on wealth distribution, and, it seems to me, (i) marginal rates will impact wealth distribution only in the long haul; and (ii) no one is proposing a significant wealth re-distribution, up or down, scheme, other than the long haul impact of the income rate changes.

You want to see push back by the truly wealthy try having Obama introduce an annual 5% wealth tax. You can tax their income, but leave their fnkcing principal alone!!!

[Brett Bellmore]

I suppose my problem with this is the unspoken premise: That very much of the policy preferences of "rank and file conservatives" ever got implemented. Aside from that, I'm not terribly averse to the notion that the policy preferences of the clique running the institutional GOP, (Who are compelled by political realities to pretend that they're advancing conservative policies no matter what they might actually be doing.) might not be very good for the economy. It's not like they've been trying to be very good for anybody but themselves, after all.

I will say, though, that I don't see redistributing wealth from the private sector to government as particularly egalitarian. Seems more like a further concentration of wealth...

[gwangung]

For this reason your term "wealth consolidation" strikes me as misleading. On a macro level it is not as if one takes wealth from others and adds it to his own pile (therefore consolidating wealth). It is that the wealth of one grows faster than the wealth of another.

This is not a value neutral result, though. Along with economic power comes political and social power (if not directly, then indirectly). Concentrating economic and political power in a smaller segment is not something I think of as good.

Growing the pie is not the sole thing we should be looking at.

[Slartibartfast]

Probably rank and file conservatives are for a flat tax, unless that has them paying more tax than they're paying now, in which case I WANT MY MORTGAGE INTEREST EXEMPTION BACK!!!

That's my guess. Me, I'd be willing to pay a little extra so's that I don't have to worry about how much I'm shooting myself in the foot by paying my mortgage and other deductible debt off early.

[Ugh]

Slarti:Which time? He cut it to 38.5 percent in 1987,

Are you counting FICA in that, cause I thought it was 28% in 1987.

Part of the problem in this discussion is that we don't have defined terms, common reference points, etc. etc. etc. So, we have Publius citing an almost 2 year old NYTimes article that's talking about income (which is undefined) of people in 2005 to support (I think) something Reich wrote that was published this weekend. Not that anything has changed since then, I would imagine.

Then we have dueling cites of Reagan cutting marginal rates, which appear to produce opposite effects, but there is no consideration of whether the definition of taxable income was the same in each year* (which is a particular failing when I find people citing the X% marginal rate of, e.g., the Eisenhower years and the corresponding wonderful economic growth, X being some surprising large #).

But, whatever. When the economy is good, stock prices rise, which results in an increase in wealth of those who own lots of stocks (and if they sell them, their income). And vice-versa. So, maybe the moral of the story is that the shift from cash compensation to stock equity compensation has increased income equality since 1980 (or whenever, though 1980 seems plausible).

*I imagine Slart's cite to the rate resulting from the Tax Reform Act of 1986 was a demonstration of the insufficiency of citing only the marginal rate in support of proposition X, but this sentence is already way longer than his comment so I don't want to put words in his mouth.

[d'd'd'dave]

// the country needs stronger unions//

What happens to unionized industries?

Railroads - dead
Steel - dead
Autos - nearly dead
Public employees - reaching point where price is too high to maintain.
Ports, construction, sports, mining - still surviving.

I don't know what this implies.

Those industries are all mature. Are there any new or immature industries that are heavily unionized?

[Slartibartfast]

Much general head-nodding going on over here, Ugh. The problem with comparing effects of tax rate hikes/cuts is that the devil really is in the details.

38.5% was real, but you're right, it went down another notch to 28% in 1988.

[Slartibartfast]

...which was a big notch, granted.

[d'd'd'dave]

//This leaves me wondering how durable the Clinton expansion was in the long run, something which is most noticeable if you look at which sectors of the economy expanded - IIRC much (perhaps close to half) of the Clinton expansion occured in the FIRE sector rather than in manufacturing or agriculture or non-FIRE services.//

FIRE I presume is finance, insurance and real estate. The growth in these would be directly attributable to Greenspan's monetary expansion.

[d'd'd'dave]

IMHO the post by ThatLeftTurnInABQ | February 03, 2009 at 07:32 PM is very useful.

Thank you.

[Ugh]

38.5% was real, but you're right, it went down another notch to 28% in 1988.

And I gazoogle and you're correct. Good to know.

[gwangung]

What happens to unionized industries?

Railroads - dead
Steel - dead
Autos - nearly dead
Public employees - reaching point where price is too high to maintain.
Ports, construction, sports, mining - still surviving.

I don't know what this implies.

Be careful with drawing causation from correlations?

There are some confounding factors here, that there might be differences between skilled and semi-skilled labor, and the former might, because of function, last longer. Too, with the auto industry, there's the factor of foreign (where the labor force there is either heavily unionized or has socialized health insurance); there may be other factors in other industries.

[Nell]

@Ugh:

The Economics Policy Institute is a left-liberal, non-clown-show think tank.

On foreign policy, the Center for International Policy is a balanced, high-integrity source.

[Ugh]

Eric/Nell - thanks; so much chaff being throuwn about these days, it seems to me.

[d'd'd'dave]

Brett Bellmore | February 03, 2009 at 08:42 PM

I agree.

[d'd'd'dave]

//Growing the pie is not the sole thing we should be looking at.//

I agree but the ideas are often conflated in the discussion. I think it's best to talk about economics or social balance but not both in the same breath. Because one will think income when he hears income and another will think social power when he hears income and they will end up arguing without meaning.

[John Thullen]

Late to the thread, but I'm not impressed with "sincerity."

Hitler, Stalin, Sean Hannity, George Bush, Newt Gingrich and Ronald McDonald are sincere.

Bad stuff sincerely implemented is a recipe for death.

What I really hate is sincere people on cable who cry and ask for money.

Jimmy Swaggert is so sincere with is weeping horseshit that women agree to go to motel rooms with him and drop to their knees penitentially.

John Thain of Merrill Lynch is the most sincere human a guy would want to meet. He believes everything he says.

Capitalism depends on bullshit sincerity.

Ask Bernie Madoff.

Ronald Reagan was sincere because the teleprompter said so.

Turn on CNBC and listen to the bullshit artists tell you that what they just told you is the most sincere crap they've ever uttered, until tomorrow, when a whole different sort of crap is called for.

Americans lie. That we get away with it is why the rest of the world holds us in such high regard. You've got to admire Eddie Haskill, because he has the cojones to just sling it.

That we believe our own crap is the part the rest of the world marvels at, especially as the preposition sincerely ends the sentence.

They want to do it too, but with honesty.

[Halteclere]

What happens to unionized industries?

Railroads - dead

Railroads are dead? Railroads have, until 2008, been setting records of tonnage shipped each year since 2000. Yea, in the late '80's and early '90's the death knells of railroads were being sounded, but globalization has brought a boon to the industry.

Trains haul freight from our ports to distribution centers in the central US. For example there is a 1.5 mile-long train that leaves Los Angeles every day, headed to Ft. Worth carrying shipping containers filled with goods.

No, the railroad industry is not dead.

Recent railroad statistics
Recent railroad overview
Historical stock price of Burlington Northern / Sante Fe

[d'd'd'dave]

//Be careful with drawing causation from correlations?//

Agreed.

I'm thinking that in mature industries the profit margins and profits are more or less stable and predictable. It is easier in such cases for unions to make their case for a bigger wedge of the pie and it is easier for owners to see what they are giving up.

New industries haven't reached an equilibrium yet so it is harder for both sides to measure their relative values. IMHO, as one who has not looked very close, it seems union contracts focus on stability rather than profit sharing. By that I mean they prefer a fixed number rather than one that varies with profits. It is something more suited to a mature industry. Profit sharing seems more suited to an immature industry. Also IMHO the profit sharing route is best for all industries.

I'm not wanting to divert the thread so i'll cease with the union talk.

[d'd'd'dave]

//No, the railroad industry is not dead.//

I stand corrected.

[J. Michael Neal]

A very large part of the reason that income concentration during the Clinton years is given a pass is that real median wages were at least going up. They weren't going up as fast as those at the top, but some increase is better than what we had before or since.

The argument that the Clinton economy wasn't sustainable has merit. The argument that income changes then are just like the ones during the Bush administration are just wrong.

[hilzoy]

I'm late to this, but, CS:

"Sebastian, you're just being deliberately silly. Do you actually have a point? Do you think -- contra publius -- that GOP legislators do negotiate in good faith? Or is it more that you just like that little thrill you get up your leg when you laser in on Clinton to the exclusion of all else?"

This is just needlessly insulting, and so violates the posting rules. If you have a point, make it. If you're capable of mind-reading, explain your credentials, and if we're convinced, we won't mind when you tell us what Seb is "deliberately" doing, or what does and does not make thrills run up his legs.

[bedtimeforbonzo]

JT @ 10:08: One of your best, good sir.

Had been many moons since I'd seen an Eddie Haskill reference.

Cheers.

[gwangung]

I agree but the ideas are often conflated in the discussion. I think it's best to talk about economics or social balance but not both in the same breath. Because one will think income when he hears income and another will think social power when he hears income and they will end up arguing without meaning.

Point taken. But much of this is correlated and entangled, and it's not possible to disentangle them. People with great wealth can often exert great political pull.

I don't have a problem with considering them separately, as long as we're clear that we are considering them separately and as components of a larger picture (and that we get to that larger picture eventually).

[GoodOleBoy]

Whew! You folks make my head spin. There seems to be a lot of opinion here that if we could just tax exactly the right people, exactly the right amount each, we could get these numbers right and everyone will be happy. Well, its just not true because its just not possible.

A lot of people who consider themselves to be conservative vote republican because its a closer fit than the democrats. But the origin of much of the republican party opposition to taxation lies in the conservative or even libertarian notion of small government and the path to that is to keep tax revenues low.

Many republicans are not interested in keeping taxes low in order to insure that government does not get to big, but for other reasons. Wealth, power and greed are high on the list for many of these people. Many of those who have been instrumental in leading us down the destructive economic path we find ourselves on would likely have self-identified with republicans or conservatives before this happened, but now those same people have their hand out to the taxpayers to bail them out. These people support tax cuts because it benefits them and they call themselves republican because thats what republicans do and democrats don't.

Another reason for low taxes is the argument regularly made that from an economic growth standpoint, money kept in private hands of those who earn it in the first place will grow the economy so that all will have a chance to grow.

Maybe what we should do is move the discussion away from economics, taxes, and who getting or not getting their 'fair' share and on to issues thought to be important by our founders the foremost of which is individual liberty.

Many will hold the view that without economic freedom there is no individual freedom. We are close to a tipping point now in this country with respect to our federal government where a minority of voters will pay all the income taxes, so those who don't pay any will have a perpetual incentive to raise taxes on those who pay the taxes in order to grow federal government programs.

This will cause the pie to shrink. Big government is not a good thing to preserve individual liberty.

This is not rocket science.

[mattH]

d^3:

IMHO, as one who has not looked very close, it seems union contracts focus on stability rather than profit sharing. By that I mean they prefer a fixed number rather than one that varies with profits. It is something more suited to a mature industry.

Were these industries mature when they became unionized, or after? Most of the ones you referenced were unionized long before their "failure" but well after they began, not in small part because their owners fought unionization with coercion that would make the Fascists of the '30s envious.

GoodOleBoy:

Maybe what we should do is move the discussion away from economics, taxes, and who getting or not getting their 'fair' share and on to issues thought to be important by our founders the foremost of which is individual liberty.

Jefferson's ideal nation was one of propertied landowners living an agrarian lifestyle. I doubt you'll get 300 million people to agree to live that way now, even if it's feasible.

[Phil]

Those industries are all mature. Are there any new or immature industries that are heavily unionized?

You've perhaps heard of the SEIU or UFCW? Or maybe not? Seems to me the industries in which those folks work are generally doing pretty well.

Another reason for low taxes is the argument regularly made that from an economic growth standpoint, money kept in private hands of those who earn it in the first place will grow the economy so that all will have a chance to grow.

Well, yes, except when we get into things like capital gains taxes and whatnot, then we're getting into very complicated issues of "earn," aren't we?

Maybe what we should do is move the discussion away from economics, taxes, and who getting or not getting their 'fair' share and on to issues thought to be important by our founders the foremost of which is individual liberty.

Maybe we should worry about the world we live in here and now and not worry so much about making sure the wishes of men who have been dead for more than 250 years are properly implemented.

[GoodOleBoy]

To MattH:

All the founders signed on to individual liberty whether they favored the agrarian lifestyle or not. Big government destroys this.

Phil:

Two points. When people risk 'their own' capital for profit, then the gains can reasonably be termed 'earned'. I acknowledge the different world we live in today but not the philosophy that abandons our founding principles.

With regard to the latter point, I (we) have the opportunity to view and compare what's left of our constitutional approach to governing with the many other approaches around the world. My assessment of that leaves us (the US) well ahead of everyone else even though we seem to have abandoned many of our principles.
Of course, this abandonment means that eventually there will be nothing left of what we inherited.

[Sebastian]

"You've perhaps heard of the SEIU or UFCW? Or maybe not? Seems to me the industries in which those folks work are generally doing pretty well."

And those unions are always complaining that they aren't nearly as strong as more traditional unions. And it is possible to fire people under them. And they don't typically have crazy benefit packages like the UAW.

So they aren't quite the same thing. Not ALL unions are horrible. Unions, like companies, come in different flavors.

I wonder, and this is conjecture, if unions don't go through maturity phases. At the beginning perhaps they are focused on safety and work ABUSES. But as time goes on, and they choke out competition by monopolizing worker access to certain companies they begin to lose focus until they become the reality-denying machines that we see in the UAW (when a plant closes we can keep the workers paid forever job banks) or the teacher's unions (testing teacher competence is i-m-possible *except for when we are trying to control the supply through education schools, then it is completely crucial*). The food workers don't typically have the kind of power that the UAW has, so they have to focus on more obviously legitimate concerns. Also there is huge turnover in their area, so they have to be concerned with attracting new people, instead of having their current workers cling to their jobs no matter how outmoded.

[Phil]

When people risk 'their own' capital for profit, then the gains can reasonably be termed 'earned'.

Well, now we're getting into what "their own" means, aren't we?

With regard to the latter point, I (we) have the opportunity to view and compare what's left of our constitutional approach to governing with the many other approaches around the world. My assessment of that leaves us (the US) well ahead of everyone else even though we seem to have abandoned many of our principles.

Then why do we, for example, have an embarrassingly high rate of illiteracy for comparable nations? Why do we get poorer health care results for higher per capita spending? Why do we have such a high teen pregnancy rate? There are lots and lots of indices which show that we are NOT "well ahead of everyone else." Take off the rose colored glasses.

[russell]

So there are really two arguments here, one over what grows the overall size of the economy, and a second argument over how the fruits of that growth are distributed.

Well said.

Regarding the first argument:

Proponents of tax cuts have generally argued that it grows the whole pie faster thereby moving all levels forward faster than they would've been moved otherwise.

Yes, they have generally so argued.

Unfortunately, I have yet to see anyone demonstrate a meaningful or consistent correlation between top marginal tax rates and the historical rate of growth in this country.

So, I don't believe them.

The floor is open, should anyone care to make that demonstration here and now.

Regarding the second argument, the CIA factbook on the US tells us this:

Since 1975, practically all the gains in household income have gone to the top 20% of households.

Unless the households making up that top 20% are, in fact, solely responsible for creating all of those gains, this is manifestly unfair.

If you care to argue otherwise, have at it.

[hairshirthedonist]

Unless the households making up that top 20% are, in fact, solely responsible for creating all of those gains, this is manifestly unfair.

And how could they be solely responsible short of creating the entire societal structure in which they were able to make those gains?

I'd like to know how many welfare checks could be cut from the legal costs of one major corporate merger, since the poor cost so much more and are therefore stealing.

[GoodOleBoy]

Russell,

Its not clear to me what argument you are making. If for more than 30 years, all household income gains have consistently gone to the same demographic, and this has been under several different tax rate regimens, it would seem that levels of taxation has little or no effect on how the greater share of economic output gets distributed. As I said in an earlier post, I support lower tax rates for all taxpayers because I do not support the notion that the government has a right to the fruits of its citizens' efforts simply because it can muster a majority in the Congress and get the President's signature. Of course, I will never get anywhere with this odd notion if none of our elected or appointed federal officials have any inclinations to actually follow their oaths to support and/or defend the Constitution.

Phil,

First, you will need to inform me of what countries are comparable to the United States, in your opinion.

With respect to literacy, I reviewed recent rankings and, considering the circumstances that prevail in the US, the freedoms we enjoy to choose and the demographic diversity, I think we are OK, although our expenditures for public education are way out of line with what we, as taxpayers, get.

On health care, I won't defend what we have as the best we can do even in a private or semi-private setup, but we again have many unique circumstances so its very difficult to accept any other nation as comparable. Much of the costs you allude to comes from our leadership in research, development, and production in pharmaseuticals, medical devices, diagnostic technology, genetics research, among other areas, and much of this is either given to other countries or usurped by other countries.

I don't have a comment on the teen pregnancy issue as it seems to relate more to personal values and personal behavior and I believe people are free to do these things if they choose.

[hairshirthedonist]

I support lower tax rates for all taxpayers because I do not support the notion that the government has a right to the fruits of its citizens' efforts simply because it can muster a majority in the Congress and get the President's signature.

Then why support taxes at all?

[Ravi]

Growing the pie and distributing it fairly are distinct goals... but there's plenty of evidence that that suggests they are not *opposed* goals.

I'm impressed with the work of Robert Frank (see: The Winner-Take-All Society and Luxury Fever), which (among a few other things) argues that distributing the pie more equally leads to greater economic growth because the resources of the wealthy are often wasted on unproductive status competition (e.g. diamond-encrusted watches) rather than consumed in useful ways (e.g. paying for your or your child's education).

I'll also add (pointing to Steve Waldman of Interfluidity) that there's an argument to be made that a big part of the financial meltdown was the search for higher yields on "safe" assets because the owners or custodians of large pools of concentrated wealth (e.g. individuals, endowments, pension plans and sovereign wealth funds) did not have enough good ideas for investing their wealth. Instead, for the excess wealth they didn't know how to invest productively, they chose to "park" their money in a "safe" asset and have someone else worry about the problem of investing it. Pushing too hard in that way (as wealth became more concentrated) damaged the alignment of incentives in the financial system... leading to the meltdown when the bubble burst. Perhaps if wealth had been less concentrated, a wider universe of people might have invested it in more diverse ways, funding more useful projects that would have lead to greater economic growth.

[GoodOleBoy]

hairshirthedonist,

Answer to your question. There are some enumerated functions that are legitimate for the Feds to carry out, and we do have a constitutional amendment that justifies a Federal tax. I just object to the concept of unlimited power to do anything that can be conjured up in Washington.

I would also like to see us governed with some principles in place to go by rather than just whatever happens to be the perceived crisis of the moment.

[Phil]

First, you will need to inform me of what countries are comparable to the United States, in your opinion.

Let's start with the UK, Australia, Germany, France and Canada.

With respect to literacy, I reviewed recent rankings and, considering the circumstances that prevail in the US, the freedoms we enjoy to choose and the demographic diversity, I think we are OK, although our expenditures for public education are way out of line with what we, as taxpayers, get.

This needs a lot of unpacking. What circumstances, specifically, are you talking about? What does "demographic diversity" have to do with literacy rates? What does "the freedoms we enjoy to choose" have to do with literacy rates? Why is anything but a 100% adult literacy rate acceptable?

On health care, I won't defend what we have as the best we can do even in a private or semi-private setup, but we again have many unique circumstances

Such as?

Much of the costs you allude to comes from our leadership in research, development, and production in pharmaseuticals, medical devices, diagnostic technology, genetics research, among other areas, and much of this is either given to other countries or usurped by other countries.

Usurped?

Also, all the leadership in the world doesn't really matter if the actual outcome is worse health for our citizens. You understand that, right?

I don't have a comment on the teen pregnancy issue as it seems to relate more to personal values and personal behavior and I believe people are free to do these things if they choose.

But you understand how it relates to things like the availability of contraception, proper health education, quality of education generally, incidence of poverty, etc.? Right?

[russell]

Its not clear to me what argument you are making.

The argument I'm making refers to dave's statement here:

If they grow the pie then they do not redistribute wealth in the sense of taking from one to give to another. They give to all though perhaps at different rates.

Yes, the rates are different. For the bottom 80% of the population, it's something like zero.

[hairshirthedonist]

There are some enumerated functions that are legitimate for the Feds to carry out, and we do have a constitutional amendment that justifies a Federal tax. I just object to the concept of unlimited power to do anything that can be conjured up in Washington.

I would also like to see us governed with some principles in place to go by rather than just whatever happens to be the perceived crisis of the moment.

GoodOleBoy,

Thanks for the response. And we pretty much agree, though I'm not entirely sure how to apply the above to what we're discussing. If we agree that the federal govt can tax, then the principle is not at issue so much at the actual rates of taxation. When you say "lower," lower compared to what and why? There's plenty of fat to be trimmed in govt, but there's also a huge deficit and, more importantly, huge public and national debt. Is lower relative to whatever the historical low is? Or relative to the current tax rates? Why are these numbers the benchmark? Or why is whatever benchmark you're using the benchmark? I don't know what rates are optimal, but I have to think that there should be quite a bit of number-crunching to be done before anyone can simply say "lower." If the current financial/economic crisis is the "perceived crisis of the moment," I'd have to say that it is correctly perceived as such.

[Francis D]

Tax rate cuts grow the pie or they don't. If they grow the pie then they do not redistribute wealth in the sense of taking from one to give to another. They give to all though perhaps at different rates. If tax rate cuts do not grow the pie then they do redistribute in the sense that they take from one to give to another.

The better question is: Do tax rate cuts grow the pie?

Compared to what, and for whom? Compared to not having the money, of course it does - you now have one extra dollar. But if that dollar could otherwise be spent on infrastructure spending, almost certainly not. First the infrastructure dollar will pass through many hands, and secondly it will provide something of lasting value. (Can anyone remember where the graph on the effects of different types of spending was posted?) Note: an exception can be made if the stimulus is over the Laffer Maximum (which can be reached - Sweden managed a 105% marginal tax rate at one point).

And GodOleBoy, if you are actually interested in a government for maximum liberty, try starting with the following three principles:
1: No citizen shall of necessity lack either food or water - when you are dying of hunger or thirst then any other form of liberty is effectively meaningless
2: No citizen shall of necessity lack shelter. When you are dying of exposure then amu other form of liberty is effectively meaningless.
3: No citizen shall of necessity lack basic healthcare. When you are dying of disease then any other form of liberty is effectively meaningless.

Once you've got the first two fixed and the third at least patched then you might possibly have a government that wouldn't provide more liberty if it grew.

[GoodOleBoy]

I see a lot of focus here on outcomes and not much consideration for process. I think I've seen this ends justifies the means political concept in a previous incarnation.

As a matter of fact, however, our political system was established to protect process and not to insure results. I doubt much is taught about this in our modern educational system, especially once we reach the university.

Its news to me that the government is the source of my liberty!

Oh, one more thing. It also seems that results are primary when dealing with economic matters (no place for protecting process) but almost every thread I've encountered where human rights has been the topic, process takes the stage and results are no where in sight. What's up?

[GoodOleBoy]

Yes, Russell, but none of the results seem to change under all different tax rates.

Phil,

I do not agree that those five countries taken together are comparable to the United States, much less any one of them.

You seem to spend a lot of time on numbers and statistics and I can't really tell what freedoms you would be willing to forego in order for the US to get to numbers that you would find acceptable.

[GoodOleBoy]

Francis D,

We have been debating for some years now who is responsible for an individual's health care. I didn't know we had already concluded that Uncle Sam is responsible for my housing and food.

You display profoundly the orientation on outcomes. I think this is very sad.

[ThatLeftTurnInABQ]

Its news to me that the government is the source of my liberty!

Every hear of a guy named Thomas Hobbes?

Of course I doubt that his work is taught about much in our modern educational system, especially once you reach the university.

[GoodOleBoy]

Hobbe's says the function of the sovereign with respect to liberty is to secure such for its citizens.

[Gary Farber]

"I will say, though, that I don't see redistributing wealth from the private sector to government as particularly egalitarian. Seems more like a further concentration of wealth..."

This might be interesting if a single citizen of the U.S. favored redistributing wealth from the private sector to government.

As it happens, just about nobody does, so it seems an odd hallucination.

[russell]

Yes, Russell, but none of the results seem to change under all different tax rates.

Yeah, dude, that's my point.

The result I'm addressing is the growth of the economy as a whole. The top marginal tax rate doesn't seem to have a meaningful correlation with that.

The economy has grown under top rates ranging from 28% to 90%. People have started and built successful businesses, and gotten bloody rich, under top rates ranging from 28% to 90%.

The results don't seem to change that much under different tax rates. Couldn't have said it better myself.

[Francis D]

I didn't know we had already concluded that Uncle Sam is responsible for my housing and food.

If you actually care about individual liberty as a practical issue (rather than simply a meaningless banner) then starvation and exposure are more damaging to it than anything short of the most totalitarian governments that have ever existed. There are advantages to keeping governments weak, but not from the individual liberty perspective.

The ideal hiring model for many corporations would be to pay someone in Company Scrip which they could only spend at a Company Store (as they did in the 19th century). The market would not exist without the government - without a large external force regulating the market it is cheaper to hire thugs and simply steal from the (other) traders than it is to trade. And even Joseph Stalin was never as creatively malicious as individuals with a huge power advantage over others can be - he was simply too far away.

And you are ignorant of history if you don't realise that without populist government intervention your much lauded liberty would be worth as much as a cup of warm spit. Unless you fancy yourself as one of those who would be on the top of the feudal heap anyway.

You display profoundly the orientation on outcomes. I think this is very sad.

Nonsense! I simply think that the stupidity of the statement "The ends justify the means" is only exceded by your take which seems to be that the means justify the ends. If a process leads to bad ends then it is probably a bad process that needs to be reassessed. If the ends of a process are mixed it needs investigation.