Economics

Nostalgianomics

Liberal economists pine for days no liberal should want to revisit.

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“The America I grew up in was a relatively equal middle-class society. Over the past generation, however, the country has returned to Gilded Age levels of inequality.” So sighs Paul Krugman, the Nobel Prizeâ€"winning Princeton economist and New York Times columnist, in his recent book The Conscience of a Liberal.

The sentiment is nothing new. Political progressives such as Krugman have been decrying increases in income inequality for many years now. But Krugman has added a novel twist, one that has important implications for public policy and economic discourse in the age of Obama. In seeking explanations for the widening spread of incomes during the last four decades, researchers have focused overwhelmingly on broad structural changes in the economy, such as technological progress and demographic shifts. Krugman argues that these explanations are insufficient. “Since the 1970s,” he writes, “norms and institutions in the United States have changed in ways that either encouraged or permitted sharply higher inequality. Where, however, did the change in norms and institutions come from? The answer appears to be politics.”

To understand Krugman’s argument, we can’t start in the 1970s. We have to back up to the 1930s and ’40sâ€"when, he contends, the “norms and institutions” that shaped a more egalitarian society were created. “The middle-class America of my youth,” Krugman writes, “is best thought of not as the normal state of our society, but as an interregnum between Gilded Ages. America before 1930 was a society in which a small number of very rich people controlled a large share of the nation’s wealth.” But then came the twin convulsions of the Great Depression and World War II, and the country that arose out of those trials was a very different place. “Middle-class America didn’t emerge by accident. It was created by what has been called the Great Compression of incomes that took place during World War II, and sustained for a generation by social norms that favored equality, strong labor unions and progressive taxation.”

The Great Compression is a term coined by the economists Claudia Goldin of Harvard and Robert Margo of Boston University to describe the dramatic narrowing of the nation’s wage structure during the 1940s. The real wages of manufacturing workers jumped 67 percent between 1929 and 1947, while the top 1 percent of earners saw a 17 percent drop in real income. These egalitarian trends can be attributed to the exceptional circumstances of the period: precipitous declines at the top end of the income spectrum due to economic cataclysm; wartime wage controls that tended to compress wage rates; rapid growth in the demand for low-skilled labor, combined with the labor shortages of the war years; and rapid growth in the relative supply of skilled workers due to a near doubling of high school graduation rates.

Yet the return to peacetime and prosperity did not result in a shift back toward the status quo ante. The more egalitarian income structure persisted for decades. For an explanation, Krugman leans heavily on a 2007 paper by the Massachusetts Institute of Technology economists Frank Levy and Peter Temin, who argue that postwar American history has been a tale of two widely divergent systems of political economy. First came the “Treaty of Detroit,” characterized by heavy unionization of industry, steeply progressive taxation, and a high minimum wage. Under that system, median wages kept pace with the economy’s overall productivity growth, and incomes at the lower end of the scale grew faster than those at the top. Beginning around 1980, though, the Treaty of Detroit gave way to the free market “Washington Consensus.” Tax rates on high earners fell sharply, the real value of the minimum wage declined, and private-sector unionism collapsed. As a result, most workers’ incomes failed to share in overall productivity gains while the highest earners had a field day.

This revisionist account of the fall and rise of income inequality is being echoed daily in today’s public policy debates. Under the conventional view, rising inequality is a side effect of economic progressâ€"namely, continuing technological breakthroughs, especially in communications and information technology. Consequently, when economists have supported measures to remedy inequality, they have typically shied away from structural changes in market institutions. Rather, they have endorsed more income redistribution to reduce post-tax income differences, along with remedial education, job retraining, and other programs designed to raise the skill levels of lower-paid workers.

By contrast, Krugman sees the rise of inequality as a consequence of economic regressâ€"in particular, the abandonment of well-designed economic institutions and healthy social norms that promoted widely shared prosperity. Such an assessment leads to the conclusion that we ought to revive the institutions and norms of Paul Krugman’s boyhood, in broad spirit if not in every detail.

There is good evidence that changes in economic policies and social norms have indeed contributed to a widening of the income distribution since the 1970s. But Krugman and other practitioners of nostalgianomics are presenting a highly selective account of what the relevant policies and norms were and how they changed.

The Treaty of Detroit was built on extensive cartelization of markets, limiting competition to favor producers over consumers. The restrictions on competition were buttressed by racial prejudice, sexual discrimination, and postwar conformism, which combined to limit the choices available to workers and potential workers alike. Those illiberal social norms were finally swept aside in the cultural tumults of the 1960s and ’70s. And then, in the 1970s and ’80s, restraints on competition were substantially reduced as well, to the applause of economists across the ideological spectrum. At least until now.

Stifled Competition

The economic system that emerged from the New Deal and World War II was markedly different from the one that exists today. The contrast between past and present is sharpest when we focus on one critical dimension: the degree to which public policy either encourages or thwarts competition.

The transportation, energy, and communications sectors were subject to pervasive price and entry regulation in the postwar era. Railroad rates and service had been under federal control since the Interstate Commerce Act of 1887, but the Motor Carrier Act of 1935 extended the Interstate Commerce Commission’s regulatory authority to cover trucking and bus lines as well. In 1938 airline routes and fares fell under the control of the Civil Aeronautics Authority, later known as the Civil Aeronautics Board. After the discovery of the East Texas oil field in 1930, the Texas Railroad Commission acquired the effective authority to regulate the nation’s oil production. Starting in 1938, the Federal Power Commission regulated rates for the interstate transmission of natural gas. The Federal Communications Commission, created in 1934, allocated licenses to broadcasters and regulated phone rates.

Beginning with the Agricultural Adjustment Act of 1933, prices and production levels on a wide variety of farm products were regulated by a byzantine complex of controls and subsidies. High import tariffs shielded manufacturers from international competition. And in the retail sector, aggressive discounting was countered by state-level “fair trade laws,” which allowed manufacturers to impose minimum resale prices on nonconsenting distributors.

Comprehensive regulation of the financial sector restricted competition in capital markets too. The McFadden Act of 1927 added a federal ban on interstate branch banking to widespread state-level restrictions on intrastate branching. The Glass-Steagall Act of 1933 erected a wall between commercial and investment banking, effectively brokering a market-sharing agreement protecting commercial and investment banks from each other. Regulation Q, instituted in 1933, prohibited interest payments on demand deposits and set interest rate ceilings for time deposits. Provisions of the Securities Act of 1933 limited competition in underwriting by outlawing pre-offering solicitations and undisclosed discounts. These and other restrictions artificially stunted the depth and development of capital markets, muting the intensity of competition throughout the larger “real” economy. New entrants are much more dependent on a well-developed financial system than are established firms, since incumbents can self-finance through retained earnings or use existing assets as collateral. A hobbled financial sector acts as a barrier to entry and thereby reduces established firms’ vulnerability to competition from entrepreneurial upstarts.

The highly progressive tax structure of the early postwar decades further dampened competition. The top marginal income tax rate shot up from 25 percent to 63 percent under Herbert Hoover in 1932, climbed as high as 94 percent during World War II, and stayed at 91 percent during most of the 1950s and early ’60s. Research by the economists William Gentry of Williams College and Glenn Hubbard of Columbia University has found that such rates act as a “success tax,” discouraging employees from striking out as entrepreneurs.

Finally, competition in labor markets was subject to important restraints during the early postwar decades. The triumph of collective bargaining meant the active suppression of wage competition in a variety of industries. In the interest of boosting wages, unions sometimes worked to restrict competition in their industries’ product markets as well. Garment unions connived with trade associations to set prices and allocate production among clothing makers. Coal miner unions attempted to regulate production by dictating how many days a week mines could be open.

MIT economists Levy and Temin don’t mention it, but highly restrictive immigration policies were another significant brake on labor market competition. With the establishment of countryspecific immigration quotas under the Immigration Act of 1924, foreign-born residents of the United States plummeted from 13 percent of the total population in 1920 to 5 percent by 1970. As a result, competition at the less-skilled end of the U.S. labor market was substantially reduced.

Solidarity and Chauvinism

The anti-competitive effects of the Treaty of Detroit were reinforced by the prevailing social norms of the early postwar decades. Here Krugman and company focus on executive pay. Krugman quotes wistfully from John Kenneth Galbraith’s characterization of the corporate elite in his 1967 book The New Industrial State: “Management does not go out ruthlessly to reward itselfâ€"a sound management is expected to exercise restraint.” According to Krugman, “For a generation after World War II, fear of outrage kept executive salaries in check. Now the outrage is gone. That is, the explosion in executive pay represents a social change…like the sexual revolution of the 1960’sâ€"a relaxation of old strictures, a new permissiveness, but in this case the permissiveness is financial rather than sexual.”

Krugman is on to something. But changing attitudes about lavish compensation packages are just one small part of a much bigger cultural transformation. During the early postwar decades, the combination of in-group solidarity and out-group hostility was much more pronounced than what we’re comfortable with today.

Consider, first of all, the dramatic shift in attitudes about race. Open and unapologetic discrimination by white Anglo-Saxon Protestants against other ethnic groups was widespread and socially acceptable in the America of Paul Krugman’s boyhood. How does racial progress affect income inequality? Not the way we might expect. The most relevant impact might have been that more enlightened attitudes about race encouraged a reversal in the nation’s restrictive immigration policies. The effect was to increase the number of less-skilled workers and thereby intensify competition among them for employment.

Under the system that existed between 1924 and 1965, immigration quotas were set for each country based on the percentage of people with that national origin already living in the U.S. (with immigration from East and South Asia banned outright until 1952). The explicit purpose of the national-origin quotas was to freeze the ethnic composition of the United Statesâ€"that is, to preserve white Protestant supremacy and protect the country from “undesirable” races. “Unquestionably, there are fine human beings in all parts of the world,” Sen. Robert Byrd (D-W.V.) said in defense of the quota system in 1965, “but people do differ widely in their social habits, their levels of ambition, their mechanical aptitudes, their inherited ability and intelligence, their moral traditions, and their capacity for maintaining stable governments.”

But the times had passed the former Klansman by. With the triumph of the civil rights movement, official discrimination based on national origin was no longer sustainable. Just two months after signing the Voting Rights Act, President Lyndon Johnson signed the Immigration and Nationality Act of 1965, ending the “un-American” system of national-origin quotas and its “twin barriers of prejudice and privilege.” The act inaugurated a new era of mass immigration: Foreign-born residents of the United States have surged from 5 percent of the population in 1970 to 12.5 percent as of 2006.

This wave of immigration exerted a mild downward pressure on the wages of native-born low-skilled workers, with most estimates showing a small effect. Immigration’s more dramatic impact on measurements of inequality has come by increasing the number of less-skilled workers, thereby increasing apparent inequality by depressing average wages at the low end of the income distribution. According to the American University economist Robert Lerman, excluding recent immigrants from the analysis would eliminate roughly 30 percent of the increase in adult male annual earnings inequality between 1979 and 1996.

Although the large influx of unskilled immigrants has made American inequality statistics look worse, it has actually reduced inequality for the people involved. After all, immigrants experience large wage gains as a result of relocating to the United States, thereby reducing the cumulative wage gap between them and top earners in this country. When Lerman recalculated trends in inequality to include, at the beginning of the period, recent immigrants and their native-country wages, he found equality had increased rather than decreased. Immigration has increased inequality at home but decreased it on a global scale.

Just as racism helped to keep foreign-born workers out of the U.S. labor market, another form of in-group solidarity, sexism, kept women out of the paid work force. As of 1950, the labor force participation rate for women 16 and older stood at only 34 percent. By 1970 it had climbed to 43 percent, and as of 2005 it had jumped to 59 percent. Meanwhile, the range of jobs open to women expanded enormously.

Paradoxically, these gains for gender equality widened rather than narrowed income inequality overall. Because of the prevalence of “assortative mating”â€"the tendency of people to choose spouses with similar educational and socioeconomic backgroundsâ€"the rise in dual-income couples has exacerbated household income inequality: Now richer men are married to richer wives. Between 1979 and 1996, the proportion of working-age men with working wives rose by approximately 25 percent among those in the top fifth of the male earnings distribution, and their wives’ total earnings rose by over 100 percent. According to a 1999 estimate by Gary Burtless of the Brookings Institution, this unanticipated consequence of feminism explains about 13 percent of the total rise in income inequality since 1979.

Racism and sexism are ancient forms of group identity. Another form, more in line with what Krugman has in mind, was a distinctive expression of U.S. economic and social development in the middle decades of the 20th century. The journalist William Whyte described this “social ethic” in his 1956 book The Organization Man, outlining a sensibility that defined itself in studied contrast to old-style “rugged individualism.” When contemporary critics scorned the era for its conformism, they weren’t just talking about the ranch houses and gray flannel suits. The era’s mores placed an extraordinary emphasis on fitting into the group.

“In the Social Ethic I am describing,” wrote Whyte, “man’s obligation is…not so much to the community in a broad sense but to the actual, physical one about him, and the idea that in isolation from itâ€"or active rebellion against itâ€"he might eventually discharge the greater service is little considered.” One corporate trainee told Whyte that he “would sacrifice brilliance for human understanding every time.” A personnel director declared that “any progressive employer would look askance at the individualist and would be reluctant to instill such thinking in the minds of trainees.” Whyte summed up the prevailing attitude: “All the great ideas, [trainees] explain, have already been discovered and not only in physics and chemistry but in practical fields like engineering. The basic creative work is done, so the man you needâ€"for every kind of jobâ€"is a practical, team-player fellow who will do a good shirt-sleeves job.”

It seems entirely reasonable to conclude that this social ethic helped to limit competition among business enterprises for top talent. When secure membership in a stable organization is more important than maximizing your individual potential, the most talented employees are less vulnerable to the temptation of a better offer elsewhere. Even if they are tempted, a strong sense of organizational loyalty makes them more likely to resist and stay put.

Increased Competition, Increased Inequality Krugman blames the conservative movement for income inequality, arguing that right-wingers exploited white backlash in the wake of the civil rights movement to hijack first the Republican Party and then the country as a whole. Once in power, they duped the public with “weapons of mass distraction” (i.e., social issues and foreign policy) while “cut[ting] taxes on the rich,” “try[ing] to shrink government benefits and undermine the welfare state,” and “empower[ing] businesses to confront and, to a large extent,crush the union movement.”

Obviously, conservatism has contributed in important ways to the political shifts of recent decades. But the real story of those changes is more complicated, and more interesting, than Krugman lets on. Influences across the political spectrum have helped shape the more competitive more individualistic, and less equal society we now live in.

Indeed, the relevant changes in social norms were led by movements associated with the left. The women’s movement led the assault on sex discrimination. The civil rights campaigns of the 1950s and ’60s inspired more enlightened attitudes about race and ethnicity, with results such as the Immigration and Nationality Act of 1965, a law spearheaded by a young Sen. Edward Kennedy (D-Mass.). And then there was the counterculture of the 1960s, whose influence spread throughout American society in the Me Decade that followed. It upended the social ethic of group-minded solidarity and conformity with a stampede of unbridled individualism and self-assertion. With the general relaxation of inhibitions, talented and ambitious people felt less restrained from seeking top dollar in the marketplace. Yippies and yuppies were two sides of the same coin.

Contrary to Krugman’s narrative, liberals joined conservatives in pushing for dramatic changes in economic policy. In addition to his role in liberalizing immigration, Kennedy was a leader in pushing through both the Airline Deregulation Act of 1978 and the Motor Carrier Act of 1980, which deregulated the trucking industryâ€"and he was warmly supported in both efforts by the left-wing activist Ralph Nader. President Jimmy Carter signed these two pieces of legislation, as well as the Natural Gas Policy Act of 1978, which began the elimination of price controls on natural gas, and the Staggers Rail Act of 1980, which deregulated the railroad industry.

The three most recent rounds of multilateral trade talks were all concluded by Democratic presidents: the Kennedy Round in 1967 by Lyndon Johnson, the Tokyo Round in 1979 by Jimmy Carter, and the Uruguay Round in 1994 by Bill Clinton. And though it was Ronald Reagan who slashed the top income tax rate from 70 percent to 50 percent in 1981, it was two Democrats, Sen. Bill Bradley of New Jersey and Rep. Richard Gephardt of Missouri, who sponsored the Tax Reform Act of 1986, which pushed the top rate all the way down to 28 percent.

What about the unions? According to the Berkeley economist David Card, the shrinking of the unionized labor force accounted for 15 percent to 20 percent of the rise in overall male wage inequality between the early 1970s and the early 1990s. Krugman is right that labor’s decline stems in part from policy changes, but his ideological blinkers lead him to identify the wrong ones.

The only significant change to the pro-union Wagner Act of 1935 came through the Taft-Hartley Act, which outlawed closed shops (contracts requiring employers to hire only union members) and authorized state right-to-work laws (which ban contracts requiring employees to join unions). But that piece of legislation was enacted in 1947â€"three years before the original Treaty of Detroit between General Motors and the United Auto Workers. It would be a stretch to argue that the Golden Age ended before it even began.

Scrounging for a policy explanation, economists Levy and Temin point to the failure of a 1978 labor law reform bill to survive a Senate filibuster. But maintaining the status quo is not a policy change. They also describe President Reagan’s 1981 decision to fire striking air traffic controllers as a signal to employers that the government no longer supported labor unions.

While it is true that Reagan’s handling of that strike, along with his appointments to the National Labor Relations Board, made the policy environment for unions less favorable, the effect of those moves on unionization was marginal.

The major reason for the fall in unionized employment, according to a 2007 paper by Georgia State University economist Barry Hirsch, “is that union strength developed through the 1950s was gradually eroded by increasingly competitive and dynamic markets.” He elaborates: “When much of an industry is unionized, firms may prosper with higher union costs as long as their competitors face similar costs. When union companies face low-cost competitors, labor cost increases cannot be passed through to consumers. Factors that increase the competitiveness of product markets increased international trade, product market deregulation, and the entry of low-cost competitorsâ€"make it more difficult for union companies to prosper.”

So the decline of private-sector unionism was abetted by policy changes, but the changes were not in labor policy specifically. They were the general, bipartisan reduction of trade barriers and price and entry controls. Unionized firms found themselves at a critical disadvantage. They shrank accordingly, and union rolls shrank with them.

Postmodern Progress

The move toward a more individualistic culture is not unique to the United States. As the political scientist Ronald Inglehart has documented in dozens of countries around the world, the shift toward what he calls “postmodern” attitudes and values is a predictable cultural response to rising affluence and expanding choices. “In a major part of the world,” he writes in his 1997 book Modernization and Postmodernization, “the disciplined, self-denying, and achievement-oriented norms of industrial society are giving way to an increasingly broad latitude for individual choice of lifestyles and individual self-expression.”

The increasing focus on individual fulfillment means, inevitably, less deference to tradition and organizations. “A major component of the Postmodern shift,” Inglehart argues, “is a shift away from both religious and bureaucratic authority, bringing declining emphasis on all kinds of authority. For deference to authority has high costs: the individual’s personal goals must be subordinated to those of a broader entity.”

Paul Krugman may long for the return of self-denying corporate workers who declined to seek better opportunities out of organizational loyalty, and thus kept wages artificially suppressed, but these are creatures of a bygone ethosâ€"an ethos that also included uncritical acceptance of racist and sexist traditions and often brutish intolerance of deviations from mainstream lifestyles and sensibilities.

The rise in income inequality does raise issues of legitimate public concern. And reasonable people disagree hotly about what ought to be done to ensure that our prosperity is widely shared. But the caricature of postwar history put forward by Krugman and other purveyors of nostalgianomics won’t lead us anywhere. Reactionary fantasies never do.

Brink Lindsey (blindsey@cato.org) is vice president for research at the Cato Institute, which published the policy paper from which this article was adapted.

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95 responses to “Nostalgianomics

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  3. Somebody delete Krugman, please.

  4. That was a really good article.

    This particular part really shocked my brain though…

    “The highly progressive tax structure of the early postwar decades further dampened competition. The top marginal income tax rate shot up from 25 percent to 63 percent under Herbert Hoover in 1932, climbed as high as 94 percent during World War II, and stayed at 91 percent during most of the 1950s and early ’60s. Research by the economists William Gentry of Williams College and Glenn Hubbard of Columbia University has found that such rates act as a “success tax,” discouraging employees from striking out as entrepreneurs.”

    63, 94, and 91 percent!? Damn. Just… damn.

    1. Nah: the bar so high few would pay. I think just Rockefeller.

  5. It’s a tribute to, well, something–ego, probably–that someone as smart as Krugman can believe that life was better in the good old days. Hey, I’m as liberal as you are dude, but life is much better now. What he really means, of course, is “My friends and I should be running things, not those Wall Street hotshots.”

    On the other hand, the stuff about the top marginal tax rate cited by Kyle is 94% jive. Those old rates were set so high that almost no one paid them. The study by Gentry and Hubbard “found” what they were looking for, as such studies so often do. The economic growth rate in the forties, fifties, and early sixties was about 3 percent, substantially higher than the supposed glory days of the Reagan tax cut, or the Bush tax cut, for that matter. Top marginal rates don’t determine economic growth.

    1. What he really means, of course, is “My friends and I should be running things, not those Wall Street hotshots.”

      THIS.

  6. On the other hand, the stuff about the top marginal tax rate cited by Kyle is 94% jive. Those old rates were set so high that almost no one paid them.

    Reference? Link?

  7. “But the caricature of postwar history put forward by Krugman and other purveyors of nostalgianomics won’t lead us anywhere. Reactionary fantasies never do.”

    READ “What’s Really Reactionary?”

  8. “The economic growth rate in the forties, fifties, and early sixties was about 3 percent, substantially higher than the supposed glory days of the Reagan tax cut”

    The industrial infrastructure of a large part of the rest of the world was virtually destroyed by WW2.

    The United States benefited from that lack of international capacity and competition until it was rebuilt.

  9. Krugman has a selective memory of the golden post-war era. The purchase of a new automobile brought people from blocks away to kick the tires. A road trip in that car meant clever state decals on the windows upon return. An airplane journey was a topic of conversation for months. Making a long-distance telephone call was an excercise in profligacy. Polio and other childhood afflictions raged through the country. Heart attacks and strokes meant death or disability. If Krugman wants to go back to those ftimes, he’s welcome to do so.

  10. Krugman has a selective memory of the golden post-war era. The purchase of a new automobile brought people from blocks away to kick the tires. A road trip in that car meant clever state decals on the windows upon return. An airplane journey was a topic of conversation for months. Making a long-distance telephone call was an excercise in profligacy.

    This reminds me of an Onion video: “Nation’s Wealthy Cruelly Deprived of True Meaning of Christmas.”

  11. The most relevant impact might have been that more enlightened attitudes

    If anyone has been responsible for more asshatery than The Enlightened, I’ve yet to hear of ’em. Can’t we just abandon their worthless asses on a desert island somewhere and finally be done with ’em?

  12. Marshall: I can’t find a reference right now, but my recollection was that the top marginal tax rates back when they were in the 90% range were on incomes above $400,000. Which, obviously, in 1950’s dollars, was a truly ludicrously high income.

    That said, certainly marginal tax rates were much higher in the 50’s, and dropped in the late 60’s and again in the 80’s.

  13. Marshall: I can’t find a reference right now, but my recollection was that the top marginal tax rates back when they were in the 90% range were on incomes above $400,000. Which, obviously, in 1950’s dollars, was a truly ludicrously high income.

    That said, certainly marginal tax rates were much higher in the 50’s, and dropped in the late 60’s and again in the 80’s.

    I wasn’t questioning the validity of the tax rates stated. I was questioning the actual evidence that Those old rates were set so high that almost no one paid them. I took this to mean that those who were eligible to pay these taxes just didn’t pay them because they were powerful. I am certain that the rates were that high, and also certain that few people were eligible for such confiscatory taxes. I thought that Alan was claiming that those who did fall into this bracket were somehow able to dodge paying taxes. Perhaps he meant that it didn’t matter how high they were because you simply can’t stick it to the wealthy enough. As if “there are only a few of them” made it proper or moral.

    Bill Gates gets exactly the same number of votes that I do, one. He should pay exactly the same tax that I do.

    One equal man, one equal vote, one equal tax.

  14. Ah, I took “Those old rates were set so high that almost no one paid them” to mean, “The old rates were for such high income brackets that almost no one was in those income brackets.”

    1. Me, too.

  15. Ah, I took “Those old rates were set so high that almost no one paid them” to mean, “The old rates were for such high income brackets that almost no one was in those income brackets.”

    You could be right. I did not read it that way, but it wouldn’t be the first, or last, time I misunderstood someone.

  16. Krugman is an idiot. Things are the way they are in the US, BECAUSE certain people, like myslef, struck out on their own, and created something, that it turn created jobs. Giving up a 12 year run at IBM, I am far better off than most, due in whole to my hard work…something liberals and “minorities” don’t do….and that is no ones fault but there own.

    Accept the responsibility of your own actions, or inaction as the case may be, and stop giving credence to fools like Krugman who are nothing but fools and simply want something to opine about knowing their usefullness is running short.

    For those of you that think that people like Bill Gates, and I, should pay the same as you? I agree…since the vast majority of people in this country pay NO taxes. Our group pays almost 70% of the tax bill. Most of you fools pay little to no taxes.

    And further, for those of you fools that think that this idiot president is not going to raise your taxes, think again. There is no way in hell those of us in the top 10% could EVER make up this irresponsible deficit.

    Good job people…hopefully you will wake up from your kool-aid induced stupor before its too late.

  17. Almost invariably, liberals discussing tax policy and it’s effect on Rich vs Poor will concentrate on incomes and disregard assets.

    One is not rich because of his income – which may fluctuate wildly from year to year if he is taking risks and is not someone else’s emplyoyee. One is rich because he has a lot of money or other assets, not because he currently has a large income.

    Many of our truly rich may make relatively small incomes- particularly taxable incomes. Does that make them poor? Obviously not.

    If you can make a large income for enough time and then hang on to some of it, you can join the club of the rich. You will not be welcomed. The whole point of income taxes is to keep you out.

    Socialism/Egalitarianism is an ideology for the protection of the rich against the middle class. And Krugman is one of its propagandists.

    1. If you can make a large income for enough time and then hang on to some of it, you can join the club of the rich. You will not be welcomed. The whole point of income taxes is to keep you out.

      No, it is to give the government something to spend. A lot, really, much more than they could raise by most other means.

  18. Two questions I’d have for the author.
    Yes, immigrants experience higher wages = higher living standard when coming to the US, or they’d stay away. But for how many of them any job at any low pay is an increase since there aren’t any for them at home?
    Second, how much does every income earner pay out due to well-intended, social-engineering measures enacted when we thought we could afford them. Safety regulations, ADA, drug war, environment etc. What are the cost redistributed to administer, enforce and litigate these policies?
    Since the trend continues at an accelerating pace, this might throw a light on what we can expect in the future.

  19. The last point about “post-modernization” resonates with me. It seems that in the age of the welfare state nobody really has to worry about getting a good education or being a good employee. Our schools certainly don’t appear to be turning out the quality of graduates they did in the post war years. The GI bill was a great thing, but it presumed that one had seen some pretty demanding conditions during their lives.

    We’re not dealing with whole generations full of people who’ve lived through a full scale Depression or fought a world war. What I heard growing up was “Life isn’t fair! Get used to it,” or “The world doesn’t owe you a living,” or “You need a good education to make a good living.” That kind of talk is definitely politically incorrect these days in the age of victimhood.

  20. Egalatarianism/equal incomes is a tribal idea. As cavemen, humans lived at pretty much the same level. But as some humans become more productive, they earn more. In a free society, this is a natural occurrence — the more productive will become more wealthier. What Krugman et al really oppose is individualism. They want to return to tribalism. Inequality of income is their excuse.

  21. I really have to note the Paul Krugman = Ellsworth Toohey parallel.

    Check wiki’s blurb about Rand’s character:

    Having no true genius, Toohey’s mission is to destroy excellence and promote altruism as the ultimate social ideal. This is put forward in one of his most memorable quotes: “Don’t set out to raze all shrines-you’ll frighten men. Enshrine mediocrity, and the shrines are razed.”

    and…

    Indeed, even when frankly describing the nightmare world which is his ultimate aim (“A world where the thought of each man will not be his own, but an attempt to guess the thought of his neighbor (…) Men will not work for money, but for prestige, the approval of their fellows – not judgment, but public polls”) Toohey makes no mention of any … Read Moreovert dictatorship or coercive apparatus. Rather, Toohey’s methods throughout the book suggest that such a regime might be able to retain the forms of democracy, multi-party elections and a free press, with actual power held by Toohey-like “informal advisers”.

    I just find it hard to believe that someone purported to be as “smart” as Krugman is too dumb to realize the end result of his philosophies. Beyond that, I mean, his level of intellectual dishonesty is simply unapproachable by any other mere mortal. I have started to seriously wonder if he read The Fountainhead as a youth and so identified with Toohey that he vowed to become him as an adult, and shazam, here he is… An endless fountain of fallacies, bad ideas, hatchet jobs & revisionism. Ugh.

  22. Well, Exalted, you’re exactly wrong. There was even less equality in tribal societies. Even now, the tribal Arabs certainly don’t have equality in their societies.

  23. What a brilliant article! Krugman’s agenda is once again exposed, and his terrible argumentation skewered, by facts and reason. Sadly this argument will make no difference, however. Krugman and his ilk have already made up their mind that U.S. style capitalism is a negative, destructive force in the world and no arguments and facts can dissuade him, or them for that matter. Don’t you understand what we’re really up against? It’s Orwellian at this point. The left has spent 30 years building up their pedagogy and, more importantly. overtaken academia and the press so they can control thought. The real question is what to do now? Best answer, leave and start over somewhere else. If we follow the kinds of policies Krugman recommends, this country will be circling the bowl in 30 years, just as Europe is with stagnant growth, high unemployment and little innovation. Do you want that? It’s game over for this country. Any suggestions on where to go next?

  24. One of the first sectors to break out of the “organization man” structure was that mainstay of American leftism — Hollywood. During the fifties, movie stars were commanding princely salaries far above the earning of average Americans, and by the sixties the entire “organization”, the studio system, was shattered. A decade later, television followed, with stars of both entertainment and news programs earning wages few of their fellow citizens could even dream of attaining.

    It seems to me the return to individualism, which Krugman bemoans, began and was nurtured and cultivated by his own ideological cohorts… all long before the eighties. Does he object to the lack of community conformity, and deference to societal norms, when committed by Hollywood, TV, and the broadcast MSM? Or only when the little people think they can do the same?

  25. I’m surprised that the high income tax rates of the 50’s – 80’s are treated as an apples to apples comparisons with current tax rates.

    My understanding of Reagan’s 1986 tax “cuts” for the rich is that the marginal rates were reduced greatly at that time, but enormous loopholes were removed from the system as well, so the effect of the “cuts” was much more income-neutral than is being portrayed here. The system was certainly more fair and transparent after 1986 than it was before that time.

    Krugman is a lot older than me, so maybe he has a better perspective than I do on this issue, but it seems like he is being purposely misleading in how he presents this information (though it certainly could be that he provides more context for the numbers underlying his thesis elsewhere, and that info is not provided here).

  26. Ah, yes, the “golden post-war years”, when polio kept public swimming pools and playgrounds empty during the summer, and Jim Crow was the law in Dixie Land.

    Good times, good times…

    Oh, and this howler:

    “The economic growth rate in the forties, fifties, and early sixties was about 3 percent, substantially higher than the supposed glory days of the Reagan tax cut

    Daresay the data doesn’t bear out that assertion.

  27. This is libertarian crap.

    I sympathize with this guy’s boredom about Paul Krugman’s sonorous pieties, but it’s funny how this commentary keeps devolving into “oh look at what those Bad People Have Done to the Poor Free Market.” He emphasizes tax laws, groupthink vs. individualism and union histories, but ignores the roles played by defunding of the social instituions that have helped marginalized groups to “get a leg up” — education, libraries, public health programs, public transportation. The Cult of the Free Market is no viable alternative to Nostalgianomics.

  28. Self dealing is the driver of inequality that most rankles and merits suppression. Self dealing’s contribution to inequality through boards and managements cannot be overestimated. Boards and management interestedly feed the predatory segments of finance capitalism.
    Corporate America becomes thereby definably anti-democratic, dominated by individuals and structures of no moral or systemic depth or concern.
    The Cato cult holds that such is the price of a free market. How convenient, and how specious. MBA does not need to mean “my benefit always”.

  29. Paul Krugman may long for the return of selfdenying corporate workers who declined to seek better opportunities out of organizational loyalty, and thus kept wages artificially suppressed…

    You could have lost the second-to-last paragraph. That kind of paraphrasing smacks of propaganda.

    It also contradicts your reason for why wages were high back then.

    Without that paragraph, this was a very good essay.

  30. Rising inequality in middle class is worldwide problem. Inequity rising only from fast technological progress.In this new era competition is increasing very fast and new technology pouring fuel on this competition.If you are changing model of car every week naturally every car maker jump in this bandwagon, how can you stop it this is a just like rate race. Those who are capable know how to manipulate he is acquiring more wealth those who are weak he left behind. This is a paradox and no one can stop this.

  31. It’s easy to forget that in the post war era the U.S. was a colossus and that foreign competition didn’t exist unti the sixties. Europe and Japan in ruins recovered only gradually. There was no pressure on union wages here from either European and Asian competitors. It was a lopsided world.
    BWM

  32. furious wrote:

    “Oh, and this howler:

    “The economic growth rate in the forties, fifties, and early sixties was about 3 percent, substantially higher than the supposed glory days of the Reagan tax cut

    Daresay the data doesn’t bear out that assertion.”

    Dare you indeed. According to the Bureau of Economic Analysis, the average GDP growth in the forties, fifties, and early sixties (ie 1940 to 1964, after which the top tax rate dropped from 91% under the Kennedy tax cut), the average growth rate was 4.85%. Under Reagan (1981-1988), the average rate was 3.43? Hence, growth rates were substantially higher in the high tax period. (Krugman cites lower figures, presumably because he’s using a different method for calculating inflation, but the result would be the same.)

    http://bea.gov/national/index.htm#gdp
    (See “Current-dollar and “real” GDP”, column C)

    In response to Kyle, etc, yes, in, for example, 1951, when the top tax rate was 91%, but it only affected those earning more than $200,000, which would be the equivalent of about $1.6 million today. Thus, only the very rich paid, but, today, there’s much more income inequality because a relatively small sliver of the population is earning vast sums, and the rest of us are not.

    High tax rates on the very rich helped promote equality and didn’t hurt growth. On the contrary, growth was higher then.

  33. Ah yes the old “if we go back to progressive taxes and work rights we’ll be hanging black folk and beating the homos before you know it” argument.

    Because nothing like that happened in the thirties did it? It was all peace and love, eh?

    I’ve not seen so much dull sophism in defense of privileged in a long time. It must really be grating you to see Krugman getting some ups for you to drag this tired old sh*t out.

    I mean “Success tax”??? Puh-lease… What comes next “socialized medicine = communism”??? Or perhaps you’ll just dig the gipper up and trot him around the country again…

    1. Care for a little fire, Scarecrow?

      Take your strawmen for a hike, Robinson. That’s not what he’s arguing and you either have a reading comprehension problem or are being willfully blind.

  34. “The highly progressive tax structure of the early postwar decades further dampened competition.”
    “The anti-competitive effects of the Treaty of Detroit were reinforced by the prevailing social norms of the early postwar decades.”

    You make this anti-competition point many times but the facts don’t bear you out. How come we went from rickety biplanes to the Concorde in this supposed period of restriction but since it was lifted? 2 steps backwards to the Jumbo. And finally now; an over-sized airbus. wow.

  35. Unearned wealth and privilege are so much easier to defend when attributed to [the grace of God/strike that] the free market, or in this case, policies also promoted by Democrats (who, somehow, papa had looked at always with suspicion, but apparently for no reason; after all, they also favored policies reducing the powers of the evil unions).

    And now, I am so happy to learn, the free market was it that also brought about civil rights! And equal rights for women! (Probably helped along by hiring minorities and women as servants and nannies. And bankers marching in the streets clamoring for civil rights and the Equal Rights Amendment.)

    Thank you Mr. Lindsey! I now can recommend your article to any of my friends with less well-endowed trust funds, who had sometimes complained how hard life is, and how much they or their parents had to -actually- work to pay the paltry 50k$ tuition, and who somehow were sympathetic to Mr. Krugman’s views (But actually, I don’t know any such people any more; they somehow dropped out of my school.)

  36. Here is Greatness
    CLINTON PRAISE–WITH PLEASURE
    GDP–rose from 6300 to11,600
    NATIONAL INCOME-5,000 to 8,000 Billion–took 20 years to grow 2500B beforeClinton
    JOBS CREATED–over 22 million–record by far
    AVERAGE WEEKLY EARNINGS–$360 to $478
    AVERAGE WEEKLY HOURS WORKED–never hit 35.0–hit that mark 4 times in 80’s
    UNEMPLOYMENT–from 7.2% down down down to 3.9%
    MINIMUM WAGE–$4.25 to $5.15
    MINORITIES–did exceedingly well
    HOME OWNERSHIP–hit all time high
    DEFICIT–290 Billion to whoopee a SURPLUS
    DEBT—-+28%—300% increase over prior12 years
    FEDERAL SPENDING–+28%—80% under Reagan- who da true conservative?
    DOW JONES AVERAGE–3,500 to 11,800 all it’s history to get to 3500 and Clinton zooms it
    NASDAQ–700 to 5,000—all of it’s history to get to 700 and Clinton zooms it
    VALUES INDEXES– almost all bad went down–good went up in zoom zoom zoom
    FOREIGN AFFAIRS–Peace on Earth good will toward each other—Mark of a true Christian–what has Bush done to Peace on Earth?
    POPULARITY—highest poll ratings in history during peacetime in AFRICA, ASIA AND EUROPE even 98.5% in Moscow–left office with highest gallup rating since it was started in 1920’s.
    STAND UP FOR JUSTICE–evil conservatives spent $110,000,000 on hearings and investigations and caught one very evil man who took a few plane rides to events.
    BOW YOUR HEADS–Thank you God for sending us a man of Bill Clinton’s character, intelligence, knowledge of governance, ability to face up to crises without whimpering and a great leader of the world.
    THANK YOU GOD FOR THE GOOD TIMES THE CLINTON YEARS.
    cswinney2@triad.rr.co

  37. GOOD OLD DAYS

    ——————– SHOCK & AWE————————
    ———-DEMOCRATS CREATE WEALTH AND JOBS———–
    1.From Harding In 1921 to Bush in 2003
    2.Democrats held White House for 40 years and Republicans for 42.5 years.
    3.Democrats created 75,820,000 net new jobs — Republicans 36,440,000.
    4.Per Year Average-Democrats 1,825,200—Republicans 856,400.
    5.Republicans had 9 presidents during the period and 6 had depression or recession.
    6.Republicans had a recession/depression in 177 months and Democrats in 32 months.
    7.DOW-1928 to 2003-Stock market gained 11% average per year under D presidents versus 2% under R presidents. Small Cap stocks gained 18% as yearly average under D and minus 3% under R.
    8.GDP-grew by 43% more under Democrats.
    ————————————————————————————————————
    Comparing Democrat’s hero-CLINTON-versus Republican’s hero–REAGAN
    ———————————————————————————————————–

    1.JOBS-grew by 43% more under Clinton.
    2.GDP—grew by 57% more under Clinton.
    3.DOW-grew by 700% more under Clinton..
    4.NASDAQ-grew by 18 times as much under Clinton.
    4.SPENDING–grew by 28% under Clinton—80% under Reagan.
    5.DEBT-grew by 43% under Clinton-187% under Reagan.
    6. DEFICITS-Clinton got a large surplus–grew by 112% under Reagan.
    7.NATIONAL INCOME-grew by100% more under Clinton.
    8.PERSONAL INCOME-Grew by 110% more under Clinton.
    SOURCES-Bureau of Labor Statistics (www.BLS.Gov)–Economic Policy Institute (EPI.org)-Global & World Almanacs from 1980 to 2003 (annual issues)
    http://www.the-hamster.com (chart taken from NY Times)
    National Archives History on Presidents. http://www.nara.gov
    LA Times 10-11-00 on Market–www.Find articles.com

    A vote for a Republican is a vote for Less Success.
    A vote to reduce the Standard of Living for all Americans.
    cswinney2@triad.rr.com

  38. Reagan Tax Cut Paid for itself-MYTH

    Cato Stephen Moore wrote an article which was published by many in conservative press.

    He wrote:
    Reagan Tax Cut increased Tax Revenues by 391 Billion from initiation date to 1989.

    From 599B to 990B or 391B increase.

    Stephen Moore is a LIAR.

    391B is correct.

    But–Reagan 750B Tax Cut was an Income Tax Cut.

    Therefore, one must measure Income Tax Increase. Stephen knew it.

    391 was what-

    201 was Payroll Tax Increase from Reagan biggest Tax Increase in History

    50B was from Reagan Gas Tax Increase of 5 cents per gallon plus other tax increases.

    391 less (201 + 50)
    left 140B Increase from Income Tax Cut.

    Moore knew these facts.

    HE LIED.

    140 is no bargain for 750.

    I was very surprised the President of Cato, Ed Crane an honest man, would have allowed it to be published.
    cswinney2@triad.rr.com

  39. Regarding clarence swinney ‘s post on how good Clinton was: Even papa said, that he did well in that time (whereas recently, apparently our investments didn’t do so well, papa said I’d have to keep the 2-year old Porsche, and cannot upgrade). But then during the Clinton presidency, it was more difficult to get servants, he said, and these have become so much cheaper recently. So there’s something positive that Bush did did for us, after all.

  40. I wept when Bush called Kerry(to his face) “just another Kennedy Tax & Spend Liberal”

    I rolled on the floor.

    I kicked the cat.

    I bit the dog.

    I slapped my wife
    (big goof-she slugged me)

    I had given a rebuttal to Kerry-Edwards-Dean-Dnc etc

    Tax & Spend=PAY YOUR WAY

    Spend & Borrow=KIDS PAY TOMORROW

    FACT CHECK

    In 1980 or after 200 years

    1000 Billion of Debt

    Reagan increased it by 1700B

    Bush I by 1300B

    Bush II by 5000B (2009)

    200 years to get 1000

    20 years to add on 8000

    Democrats have been very dumb to allow the Tax & Spend nonsense.

    lBJ increased Total Spending by 60%

    Reagan by 80%

    Bush II by 100%

    cswinney2@trid.rr.com

  41. # 8 BUSHOVOMITS II
    written about 2007

    JOBS
    NET NEW JOBS PER MONTH

    Clinton-237,000
    Carter—-218,000
    Reagan—175,000
    Bush II—-70,000 (He brags on this-wow)

    TOTAL STOCK MARKET GROWTH
    PERCENT INCREASE PER YEAR

    Clinton—41%
    Bush I—-21
    Reagan—17
    Carter——5
    Bush II—–4 ( he calls this Zoom?)

    How? Yes, much money has been made as the stocks climbed out of deep hole.
    Example-Cisco zoomed from $75 to $15. Deep hole. Then, over six years it zoomed to $35.
    S& P just recently reached it’s 2000 Level.
    One-Half the Dow thousands just go back to 2000 level. Not Dow 30.
    HOME COSTS

    Average annual income to buy an average priced home
    2000-3.2 years—-2006-5.4 years
    An increase of 68% over six years.
    The next noise you hear will be Foreclosure Boom

    INFLATION

    Ignore gasoline-home prices-education prices-heath care prices
    Everything is beautiful if you can control the numbers.

    MONEY SUPPLY

    M-3

    Increase in each decade
    1970-1207 Billion
    1980—2266
    1990—2612
    2000—3693 (6 years)

    Increase per year for each decade

    1970-120
    1980—226
    1990—261
    2000—615 (6 years) will hit 800?

    Life is grand when Chairman and all Federal Reserve Officials are “Conservative” Republicans

    Ok! So the Europeans can buy our goods now-

    In 2000 it took $.83 to buy a Euro. Now it takes $1.37
    3 course-set lunch-London-$61.50-Nyc-$45
    Four Seasons Room-London-$1,000-Nyc-$465

    DEBT-

    1980-Less than 1000 Billion (after 200 years)
    1990—4,000 (12 years of Conservative Republicanism)
    2000—5700
    2007— 8881 (7-10-07)

    wow! More Spend and Borrow let Kids Pay Tomorrow Conservatism

    SPENDING

    Clinton last budget 1.84 Trillion. Bush up to 2.9 with one budget to go.

    Reagan increased Total Sending by 80%. Bush may tie LBJ at 60%.

    Note how Heritage-AEI and all Conservatives count only one-half of the budget as their presidents responsibility. Watch them on Revenues. They will cheat. They will use correlations where there is no connection.

    SAVINGS

    Total National Savings has gone negative for first time since Conservative Big Crash

    PROFITS

    Corporate profits at all time high

    Buy overseas at $.50 cent per hour labor and sell to suckers as tho $10 per hour labor

    Keep minimum wage as low as possible.

    Use two part time instead one full time

    Do not pay Insurance.

    Maximize Profits like good Christians.

    Ever hear of optimizing profits?

    Buy Washington. It is cheap.

    INTEREST RATES

    Republican Federal Reserve let Clinton end with a 6.5 % rate then few months later gave Bush a 1% rate. If this Federal Reserve is non-partisan I will shoot a 61 tomorrow.

    Greenspan gave Clinton 13 significant rate hikes during campaign years.

    Everything is beautiful if you are Mega-Rich.

    cswinney2@triad.rr.com

  42. Kevin Phillips states in new book

    10% now have 71% of Total Wealth in America.

    1% have 22%.

    Richest on Wall Street have been paying less than 20% of income in Taxes.

    Buffett paid 17% in 2007.

    Rich pay most of our Income Taxes because they have most of the Income.

    Yet! They do not pay a FAIR share as a percentage of Total Income.

    PAY MORE.

  43. Jim Manzi has a post addressing this article on the Corner. It’s quite good as well:

    http://corner.nationalreview.com/post/?q=NDExYzJkMTRmN2Q2MzY3NDUwOTMyMzg3NGQ2MDI2NTc=

  44. clarence, Buffett often whines he doesn’t pay enough in taxes. But he is a lying hypocrite. Any day he wanted he could write a check to the US Treasury and pay more.

    He doesn’t want to pay more, he wants others to pay more. A simple flat tax that eliminates deductions and loop-holes would result in the rich paying more in taxes. It would also unemploy droves of accountants and lawyers which would be another benefit.

    Regardless, I say we tax Democrats at 80-90% rates. It’s time for those hypocrites to put their money where their mouths are.

  45. Let’s see, I am supposed to believe a Cato guy that represents the policies and practices that brought the world economy to its knees over the most recent Nobel prize winner in Economics who predicted precisely this result. Tough choice that one. Cato is totally divorced from real world economics. What a bunch of retrograde losers! You Americans could learn so much from Europe included how to conduct your selves politically in a civilized manner.

  46. I get it. Krugman’s happy youth was the result of racists like all those Democrats keeping out poor people who make the rich people look even richer and more skilled by comparison. So if you want your precious middle class, Krugman, try joining the Klan. Ha!

  47. New at Reason: Robert Byrd was the only Dixiecrat!

    That’s right, boys and girls, LBJ did NOT turn the rest of those Dixiecrats into Republicans. Look over there!

  48. I love Renaissance Fairs. Great costumes, crafts fairs, harmless jousts, that sort of thing. And I wish there were more “craft” and individual artistry in all of today’s construction and design. Doesn’t mean I wish we had the bubonic plague and local warlords and raping and pillaging. The same way, it’s fair to believe that higher unionization and more progressive tax rates would be good for Mr & Mrs America, but decry racism. Isn’t it? Sure it is.

    Not that unions couldn’t be better run, just as big corporations could be better run, too. See GM’s and the UAW’s dance of death. And the way my union, SAG, is kowtowing to the producers is embarrassing. But still, when you look at the pre-union workplace, you’d have to be pretty Scroogy not to appreciate the improvements. Even exemplary non-union workplaces today are only that way because they compete with union workplaces. If Ralphs didn’t have to have union workplaces, Whole Foods wouldn’t have to have such good employment practices. And if they didn’t have to, they wouldn’t – the shareholders and management would see to it.

  49. As usual, the comments are far more interesting than the article that provoked them.

    There is still hope for free speech and real thinking in America but it isn’t generated by one-sided articles like this one.

    We all need to open the door to the possibility that we might be wrong about important things if we want to avoid turning into ossified caricatures of ourselves and if we want to encourage real debates.

  50. For what it is worth, here is my list of the reasons for increases in inequality; some of which are not in Mr Lindsay’s very good analysis:

    Provision of services, etc, with public money, that primarily benefit the wealthy, and the neglect of infrastructure that was a greater benefit, proportionally, to lower income earners. The neglect of roads, and time wasted in congestion, has a disparate impact on the poor, who tend to depend more on motor vehicle use than middle class people who can choose where they live and can organise their life around public transport. Public Transport routes converge closer to city centres, so that those who live in the higher-priced homes in those areas, find public transport convenient but those who live in lower-priced homes further out, do not.

    The subsidy of cultural centers and art galleries benefits the wealthy at the expense of the poor. New Orleans was a classic illustration of the consequences of concentration on trendy cultural vibrancy and the like, by the local administration, at the expense of vital infrastructure that was fought tooth and nail by chardonnay greenies and NIMBY-ists.

    Worth a specific mention, are “free” public goods like Water (in some jurisdictions). In so far as poorer people use a lot less and yet pay for the resource, and wealthier people use a lot more, the cost burden falls disproportionately on the poor in comparison to politically unfashionable “user pays” systems.

    Background reading: “Back To Basics”, by Joel Kotkin
    http://www.joelkotkin.com/Urban_Affairs/NAF_GrowthStrategy.pdf

    The “conservation” of land, and restrictive zoning, has a disparate impact on the poor, on the young and those who do not own properties, in favour of the more well-off who maintain their nice views and surroundings, while property values escalate out of reach of all who are not already property owners. An excellent article in this respect, is “Green Disparate Impact”, by Thomas Sowell. (The “poor” population of California is actually being driven out of state by escalating property values).
    http://www.townhall.com/columnists/ThomasSowell/2008/01/15/green_disparate_impact?page=full&comments=true

    Also, in “The Housing Bubble and the Boomer Generation”, Robert Bruegmann argues that this phenomenon has resulted in “the greatest intergenerational wealth transfer in history”, in favor of older, existing home owners, at the expense of young, first home buyers. The “boomer generation” benefitted from pro-development policies that enabled them to buy low-price first homes on the urban fringes, while at the same time the price of all houses was kept low. But now the boomer generation has gone along with land conservation policies that result in the prices of all homes being driven up, which benefits them but prices first home buyers out of the market. And when these property price “bubbles” burst, it is the people who bought more recently, mortgaged to the limit, who suffer the most from bankruptcies.
    http://www.newgeography.com/content/00452-the-housing-bubble-and-boomer-generation

    One of the most absurd consequences of these policies, is that while the house prices go up faster than the young can save a deposit, the home owning generation can borrow against the appreciated value of their own home and use the money to buy further “investment properties”, which they then rent out to those who are locked out of home ownership by the rising prices. Hopefully now that there has been a major financial crash stemming from these land price inflating policies, they will be reviewed. They were in any case, as this essay points out, probably the foremost cause of widening inequalities in society.

    A further related factor, is the trend for developers of new housing, to be required to pay “infrastructure levies” and the like, which add tens of thousands of dollars to the price of every new home. The new homes bought by previous generations, had no such levies imposed and infrastructure was funded out of general public revenue. This gets worse, though, as “infill development” closer to the city centre requires expensive upgrades of old and inadequate infrastructure; while the beneficiaries of this development are invariably wealthier people, the political fashionability of infill development means that special levies are not made or are minimised, throwing a disproportionate burden onto the rates paid by young households closer to the urban fringes.

    Increases in regulatory expense, like RMA costs, and the costs of obtaining licenses for commercial activity and the like, tend to inequality. A James Wattie could start up a food canning business in his garage. These “rags to riches” stories, are no longer possible, except perhaps in the entertainment industry.
    This phenomenon is well covered in the book “The Mystery of Capital” by Hernando DeSoto. Interestingly, well-established larger businesses like this phenomenon, as it keeps competition to a minimum, hence the little-publicised support of many wealthy people for regulatory, socialist politics. Incidentally, that is not “Capitalism” although the cunning socialists “spin” the issues so it gets blamed on “Capitalism”. (The correct term is Socialist Parasitism). More recommended reading: “Intellectual Class Wars”, by David Horowitz, “Freedom of Opportunity, Not Equality of Opportunity” by George Reisman, and “Scratching By: How Government Creates Poverty as We Know it”, By Charles Johnson:
    http://www.fee.org/publications/the-freeman/article.asp?aid=8204

    California is probably the outstanding illustration of all these effects of misguided policy of “Liberal Left” government on poorer people, which the same government and politicians claim to care about more deeply than “free market” politicians. A recent article made this comment:

    “….As recently as the 1980s, Californians generally got richer faster than other Americans did. Now, median household income growth trails the national average while the already large divide between the social classes-often bemoaned by the state’s political left-grows faster than in the rest of the country…..”

    http://www.american.com/archive/2008/november-december-magazine/sundown-for-california

    The trend towards greater levels of immigration, and relaxed criteria for language, qualifications, and wealth of immigrants. Immigrants in the past tended to be fewer in number, of high qualification, and socially mobile. Our Western culture now demands less discrimination, and large numbers of modern day immigrants merely swell the ranks of the immobile underclass.

    The subsidy of tertiary education with public money. Tertiary education itself, tends to increase inequality, due to the higher incomes commanded by graduates. To use taxes, which must remain necessarily high on low income earners, to subsidise this, only worsens the situation. An outright free market situation with all students paying fees, and a broader use of direct student-based “scholarships”, would actually produce less inequality than the system we have now, and would produce much better results in terms of relevant qualifications. I suggest that many of the poorer folk who do make it to Uni under the current system, could be tending to make poorer choices of qualification, which would be eliminated by better guidance under a scholarship-based system especially scholarships funded by private enterprise which best knows of its needs for people with certain qualifications.

    Breakdown in traditional marriage. The obvious thing is the disadvantage to children brought up without a father, or with a string of perverse male role models in their lives. But also, marriage across socio-economic groups, and subsequent “inheritance”, were powerful reducers of inequality.

    The obvious contrast between single parent families and double income families. In previous eras, there were less of both these things. Obviously, if we progress from a societal model where most families have 2 parents, with one working; to another model where there are a large proportion of double income families and a large proportion of solo mothers, either working or not, we will experience an increase in inequality.

    Lastly, the trend for wealthier people to have children later in life, and have less of them, while poorer people still have larger families, tend to start earlier, and the worst of all are, sadly, early-starting solo mothers; this is a guaranteed recipe for cross-generational poverty.

  51. Unearned wealth and privilege are so much easier to defend when attributed to [the grace of God/strike that] the free market, or in this case, policies also promoted by Democrats Discount Cordless Screwdriver(who, somehow, papa had looked at always with suspicion, but apparently for no reason; after all, they also favored policies reducing the powers of the evil unions).

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  56. There was on spot where Brown was talking and he said something like” this is where I differ from Mrs Coakley” or something like that? the camera panned to her right then and she had a smirk on her face that make me sick. If they are going to show that smirk showing up for much of this debate.. well.. it sure would turn me against voting for her if I lived in MA. She had her head tossed back arrogantly and just smirked?

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  62. reply:Ah, I took “Those old rates were set so high that almost no one paid them” to mean, “The old rates were for such high income brackets that almost no one was in those income brackets.”

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  66. It doesn’t seem complex to me why this ‘inequality’ has happened.

    1. After WWII, every international competitor worth the name was in ruins. (Germany, Japan, France, China etc.). When you’re the only game in town, its always a good game.

    2. Once we left gold and went In Xerox We Trust it became much easier for Americans to buy things with paper then make things to buy. The explosion of service industries to feed us all our foreign junk came to dominate unskilled employment opportunities (especially after the likes of the Japanese started eating Union lunch in industrial production). Union or not, the dude’s time spent hooking you up with Chinese TV’s and Taiwanese computers at Best Buy is not worth $60k a year plus bennies.

    3. Since only the ‘rich’ had access to their capital (wasn’t tied up in SS pensions or weird, baby-sitter tax structures like 401k’s and such) took advantage of that mobility to fleece everyone whose capital was parked in such inscrutable financial constructs, and move money offshore where big genuine returns can be made (from said Japanese, Chinese, German, etc.).

    Not very complex.

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