Paul L. Caron
Dean




Monday, August 8, 2011

Pasquale: Shared Sacrifice of Whom?

balkinization, Shared Sacrifice of Whom?, by Frank Pasquale (Seton Hall):

As Drew Westen observes today, “400 people control more of the wealth than 150 million of their fellow Americans,” and “the average middle-class family has seen its income stagnate over the last 30 years while the richest 1% has seen its income rise astronomically.” These extremes cry out for a theodicy, justifying mammon’s ways to man. ..

In an ideal world, the S&P downgrade would jolt the US into recognition of how bizarre our economic policies have become. The very wealthy have captured more of the economy’s growth, but have seen their taxes reduced to near-record-low levels. As Juan Cole has argued, a self-reinforcing pattern of income gains at the top has left everyone else caught in a downward spiral of deleveraging, cutbacks, and austerity:

Most of our problems come from the US government coddling very rich people, which it does because the very rich pay for politicians’ campaigns and expect a payback. And as more and more of the country’s wealth has gone to the 750,000 families [at the top which have seen the fastest income gains], they have gained more and more control over Congress.

The recent budget deal accelerates the process, slashing funding for fundamental investments in the nation’s future in order to preserve the Bush tax cuts for the wealthy. Based on the work of Michael Perelman, Richard Seymour identifies the problems set to intensify:

The pathologies of the US economy are not exactly a secret[. . . ]: long-term underinvestment in research and development, low productivity resulting from a shift toward low wage service jobs, more financial vs productive investment, underinvestment in infrastructure, and an irrational military Keynesianism that results in the best innovation and research being conducted in secrecy . . . .

I have also commented on these trends, and I see them all as epiphenomenal of an increasingly short-termist elite angling for larger pieces of a shrinking pie. A little investment in transport, education, technology, and energy now may pay great dividends in the future. But in a world driven by quarterly profit statements, daily market fluctuations, and nanosecond-denominated high frequency trading, long-term value creation is decidedly unfashionable.

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THIS IS WHY THE "RICH" ARE SITTING ON THEIR MONEY:

"Following a 600 point plunge in the DJIA yesterday, today we see a 400 point surge following the presentation of the weak case of the expected Bernanke Put. And completing the amazement, the 10 Year bond, moved to almost record lows, and then retraced virtually the entire move, AS NOBODY KNOWS WHAT CENTRAL PLANNING HAS IN STORE FOR AMERICA ANY LONGER (caps emphasis added by me). Additionally, after being up 50%, VIX is now down 22%. Congratulations Ben: in taking central planning to nth double-down levels, you have now broken not only the stock, but the bond market as well."

via Zero Hedge
8/9/2011

Posted by: ColoComment | Aug 9, 2011 4:22:02 PM

Publius

Wonderful. Your attempt to seem so balanced is undermined by your distortion of facts. I cannot say what I think of you. Not publicly.

Most measurements show that our levels of taxation as a % of GDP has been relatively constant. Incorrect Publius fact #1.

Our economy is growing too slowly. Only since the recession of 2008. Incorrect Publius fact #2.

The Bush tax cuts affected more than just "the rich." The Bush tax cuts dropped millions of not-rich off the income tax rolls. Like families of 4 earning $40 -50 K. Incorrect Publius inferrence.

I lived and worked the tax system when the maximum rate was 70%. A great time for tax lawyers. We made a fortune. After the Tax Reform act of 1986, which reduced rates, the number of tax lawyers at major law firms declined by about 50% (YES 50%) over the next 15 years. And tax revenues did not decline. When the top tax rate was 70% bizzaro world shelters looked good - but not at 28% when real world investments looked much better.

Yes, Publius, let's return to the pre-Bush golden age and add another 20% or so of the working class to the tax roles. Watch their wages shrink then.

Oh, and by the way, I think of myself as part of the "working" class - I would bet my proletariat creds are better than yours. Maybe wages have been stagnant - but prices have fallen. A 20" tube TV cost above $700 in 1970 - 1/4 of what it might cost today. Basic computers cost nearly $2k in the early 1990s. Let's measure wages against the cost of goods.

Oh what's the use - you are innoculated against the truth.

Posted by: Ed D | Aug 9, 2011 12:19:05 PM

I try to abide by Exodus 20:17: "Thou shalt not covet thy neighbour's house, thou shalt not covet thy neighbour's wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor any thing that [is] thy neighbour's."

I think its a good policy, adds to my sense of integrity and might even help my everlasting soul.

Posted by: Yo Gabba Gabba | Aug 9, 2011 10:13:39 AM

Mike, for better or worse, the CBO/IRS report this stuff. In constant dollars, a middle class family today makes 25% more than their counterpart in 1979. They have more education, more TVs, more cars, bigger homes. By every measure possible, they have more stuff than their counterparts from the 70's.

Yes, the rich have done very well. But they have done well by creating new wealth. They don't take the wealth from the middle class.

The guys at Google get together, and from NOTHING they create $200B in wealth. They didn't take a dime from the middle class to create this. Just boom: One day it's not there, and then the next day it is.

So, our real problem is that there is a % of this country that is really good at creating new wealth. It could go a dentist expanding his practice. Or Google creating a new business.

But since they aren't taking this wealth from the middle class, why on earth would we consider removing incentive from the creators?

Do we injure the knee of football players that are very fast runners? Do we mar Brad Pitts face with scars because he is too good looking? Remove a few toes from an NBA players foot so he can't jump as high?

This desire to "hold back" those that are so good at creating wealth is curious indeed.

This country has largely succeeded far more than any other country in the world because we've allowed those that create to create and keep their spoils.

Posted by: alan | Aug 9, 2011 10:03:15 AM

mike, it is not a "policy of envy" or an attempt "to direct anger against a small number of people at the top." Nor, Jake, is it "Incoherent Marxist class warfare rhetoric." I also think that the author's supposition that it is "the US government coddling very rich people, which it does because the very rich pay for politicians’ campaigns and expect a payback," misses the mark. Republicans and other right-wing types have to be elected by significant numbers of the middle class and far too many of the rich favor reformed and increased taxation, along with many of the spending reforms advocated by the author, to give credence to this diagnosis.

These are real questions being posed by serious people. The talking heads minimize the issues by calling them partisan. Both of you trivialize them by converting the questions into bumpersticker lines. But what is really going on is a genuine debate by serious people who see different visions for our country. I happen to think the author is more correct than either of you, but I won't ascribe ill-motive to you or sloganize your positions.

Instead, I'd like you to give serious consideration to this question. Answer in a thoughtful way if you can. It is a fact that since the early 1950s, our levels of taxation, as a portion of GDP, have been declining. At the same time, the concentration of wealth has been increasing, and the trend has been accelerating over the last 20 years. Real wages for the working and middle classes have been stagnant or shrinking since 1970. The Bush tax cuts have been in place for more than 10 years. Yet our job creation is lagging behind our economy, which itself is growing too slowly. When can we expect the concentrated wealth of the rich to spur our economy and produce the jobs? You have been telling us that this is going to happen for some time. Where are the results?

Posted by: Publius Novus | Aug 9, 2011 7:30:29 AM

I think that as long as the left is focused on what is essentially a policy of envy, trying to direct anger against a small number of people at the top, it is going to have little success. The problems of the US economy result from a number of trends, including globalization immigration and other factors, and not from a conspiracy by a small number of people at the top. Unless or until it is seen that way, it isn't going to change.

Posted by: mike livingston | Aug 9, 2011 2:50:09 AM

Incoherent Marxist class warfare rhetoric, unworthy of serious attention.

Posted by: Jake | Aug 8, 2011 3:50:55 PM