Paul Krugman: Left Behind Economics

Paul Krugman reviews the implications of data from 2004 on the distribution of income that have just become available. As he notes, and as noted here in a post discussing the Piketty and Saez study referenced below, the data show that recent trends towards more concentrated income continued between 2003 and 2004 and there is reason to believe the trend towards more concentration will persist into the future unless there are changes in policy

Left Behind Economics, by Paul Krugman, U.S. Economy Commentary, NY Times: I’d like to say that there’s a real dialogue taking place about the state of the U.S. economy, but the discussion leaves a lot to be desired. In general, the conversation sounds like this:

Bush supporter: “Why doesn’t President Bush get credit for a great economy? I blame liberal media bias.”

Informed economist: “But it’s not a great economy for most Americans. Many families are actually losing ground, and only a very few affluent people are doing really well.”

Bush supporter: “Why doesn’t President Bush get credit for a great economy? I blame liberal media bias.” ...

Many observers, even if they acknowledge the growing concentration of income..., find it hard to believe that this concentration could be proceeding so rapidly as to deny most Americans any gains from economic growth. Yet newly available data show that that’s exactly what happened in 2004 ...

Here’s what happened... The U.S. economy grew 4.2 percent, a very good number. Yet ... real median family income — the purchasing power of the typical family — actually fell. Meanwhile, poverty increased, as did the number of Americans without health insurance. So where did the growth go?

The answer comes from the economists Thomas Piketty and Emmanuel Saez, whose long-term estimates of income equality have become the gold standard for research on this topic... They show that even if you exclude capital gains from a rising stock market, in 2004 the real income of the richest 1 percent of Americans surged by almost 12.5 percent. Meanwhile, the average real income of the bottom 99 percent of the population rose only 1.5 percent. In other words, a relative handful of people received most of the benefits of growth.

There are a couple of additional revelations in the 2004 data. One is that growth didn’t just bypass the poor and the lower middle class, it bypassed the upper middle class too. Even people at the 95th percentile of the income distribution — that is, people richer than 19 out of 20 Americans — gained only modestly. ...

The other revelation is that being highly educated was no guarantee of sharing in the benefits of economic growth. There’s a persistent myth, perpetuated by economists who should know better ... that rising inequality ... is mainly a matter of a rising gap between those with a lot of education and those without. But census data show that the real earnings of the typical college graduate actually fell in 2004.

In short, it’s a great economy if you’re a high-level corporate executive or someone who owns a lot of stock. For most other Americans, economic growth is a spectator sport.

Can anything be done to spread the benefits of a growing economy more widely? Of course. A good start would be to increase the minimum wage, which in real terms is at its lowest level in half a century.

But don’t expect this administration or this Congress to do anything to limit the growing concentration of income. Sometimes I even feel sorry for these people and their apologists, who are prevented from acknowledging that inequality is a problem by both their political philosophy and their dependence on financial support from the wealthy. That leaves them no choice but to keep insisting that ordinary Americans — who have, in fact, been bypassed by economic growth — just don’t understand how well they’re doing.

_________________________
Previous (7/10) column: Paul Krugman: The New York Paradox
Next (7/17) column: Paul Krugman: March of Folly

Comments

[save_the_rustbelt]

"More trade will make us more prosperous."

oops!

[Something Polish]

I keep hoping that someone will ask the [technical] Prez:

"During your tenure, average famliy income has increased, while median family income has decresed. You have an MBA from Harvard; could you please explain the difference between 'average' and 'median'?"

[josh]

A few weeks back, Mark linked to a Krugman piece way back where he said (on the Card/Krueger study):

"What is remarkable, however, is how this rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda--for arguing that living wages "can play an important role in reversing the 25-year decline in wages experienced by most working people in America" (as this book's back cover has it). Clearly these advocates very much want to believe that the price of labor--unlike that of gasoline, or Manhattan apartments--can be set based on considerations of justice, not supply and demand, without unpleasant side effects."

Now, today, Krugman is saying:

"Can anything be done to spread the benefits of a growing economy more widely? Of course. A good start would be to increase the minimum wage"

Am I missing something? Is creating "unpleasant side effects" really a way to "spread the benefits of a growing economy"?

[Ben Litchman]

"A good start would be to increase the minimum wage"

Paul Krugman should read some Paul Krugman.

http://economistsview.typepad.com/economistsview/2006/06/paul_krugman_th_2.html

[Ben Litchman]

Damn, you beat me, Josh!

[Tymbrimi]

Oh, let's be serious, and honest. Raising the minimum wage will do practically nothing to change the income disparity. Exactly how many percentage points will the current Democratic proposal change the current income distribution? Any at all? Increasing the minimum wage is mere demagogery, and lousy policy. In my geographic area, starting wages are way above the proposed minimum wage. Zilch effect.

[reason]

Yes, raising the mimimum wage is at best a short term tokenist palliative. But it would be a political signal that someone cares, so I guess that is a come-on directed at the Democrats. The coming recession will make it obvious that being working poor is somewhat better than being non-working poor. But this is just an extract from Krugman, I'm sure he is still thinking about a more complete package (I suspect he is actually a bit non-plussed).

My take is that micro-economic reform (pro-competitive, anti-trust, labour market bargaining power measures, perhaps income subsidies a la Milton Friedmann's negative income tax) and international monetary reform are the way to go. People place too much weight on macro policy these days.

[anne]

Well, short of lowering the minimum wage as a conservative alternative for worker well-being, the mere disdain conservatives have for requiring paying a decent wage to workers tells me the minimum wage needs to be raised.

[ilsm]

Tymbimi,

Are you the one who I asked to compare your approach to paying less taxes to the Army or Marine Corps E-4 in Iraq who is serving "our" nation?

Is the minimum wage person serving "our" nation more or less than you are serving "our" nation?

Answer some questions before asking yours.

Are you all take and no give?

[bakho]

Instead of equal opportunity, they support a "financial elite" because they favor concentrated wealth and power. They believe in a government that is secret, unaccountable and that maximizes its own power. They really believe the world works better if they run it and we keep our mouths shut." -Bill Clinton

[yartrebo]

One should also remember that services used by the middle and lower classes are also increasing in cost much faster than inflation. In particular, health care, energy, and housing.

A person making the median wage cannot buy as much of these necessities and near-necessities as they could last year, and for most lower income people, they make up over 50% of the budget.

[ilsm]

Does society exist to benefit the "financial elite" or does the "financial elite" exist to advance society?

[bakho]

Society exists. and Society a set of operating rules. Financial elites have obviously benefitted more from the rules than others. In fairness financial elites should shoulder a larger share of the costs of the society that contributed to their wealth than those who receive less benefit from the rules.

[save_the_rustbelt]

I live in a mid-sized Ohio city known for being more prosperous than average.

On Friday the local paper publishes the legal notices required for home foreclosures, and I was stunned to see the list this morning.

HUGE!

But then we are getting a new Wal-Mart.

[BAWDYSCOT]

My question is why should the president get any credit for how the economy is doing, whether good or bad? I maintain Clinton was the luckiest politician I have ever seen. Who knows how that economy would have looked if it wasn't for the personal computer.

[anne]

http://www.nytimes.com/2006/07/14/us/14laborers.html

July 14, 2006

On Dusty Corner, Laborers Band Together for More Pay
By STEVEN GREENHOUSE

AGOURA HILLS, Calif. — The black Lexus stopped just yards from a large, shady oak tree, and eight copper-skinned Guatemalan men rushed over.

For a minute, the woman in the car and the men haggled feverishly before the Lexus drove off — without any day laborers to help with her gardening.

The woman had offered to pay $10 an hour, not realizing what she had stumbled into: the only day labor site in the nation that has set a $15-an-hour minimum wage.

At a few dozen other sites across the country, day laborers have set minimums, usually $8 or $10. But only at this corner in Agoura Hills, a well-to-do town 40 miles northwest of Los Angeles, experts say, have they been bold enough to insist on $15, nearly three times the federal minimum wage. Some laborers who are particularly skilled at plumbing or hanging drywall get $18 or more.

“There are always employers who look for cheap workers,” said Virgilio Vicente, 47, a Guatemala immigrant who spent the week framing walls for a small contractor. “But we have an agreement, and no one is going to go for less. We don’t feel bad when someone drives away because we know other clients will always come.”

Their move is a risky experiment, reminiscent of crude unionization efforts of a century ago. It is uncertain if laborers at other sites will join the move to a $15 minimum or even whether the workers at this corner, the intersection of Kanan and Agoura Roads, can make it stick. When they raised their rates last month, the demand for their services went down as some homeowners and contractors began seeking workers at another corner five miles away.

Luis Cap, 32, a stocky Guatemalan immigrant who has been a mainstay of the corner for 14 years, is not worried. “The employers complain, but we explain that it is very expensive to live in this city,” Mr. Cap said. “We tell them: ‘Gas is expensive. Rent is expensive. Insurance is expensive. Everything is expensive.’ ”

The increase may have slowed business somewhat, but many workers are still hired for four or five days each week. Others find work only two or three days, but that is still lucrative enough to persuade some to make the 80-minute bus trip from Los Angeles.

On Monday and Tuesday, about half the 50 laborers who showed up were hired to paint, garden, dig swimming pools, lay foundations or hang drywall. In the spring, regulars on the corner said, the percentage of those hired is greater.

Abel Valenzuela Jr., a professor at the University of California, Los Angeles, who did a nationwide study of day laborers, said it was not surprising that the Agoura Hills workers were ahead of the pack....

[anne]

Actually, policy matters in economics; matters a lot. The strategy of raising taxes modestly to limit the growth of the deficit allowe for far lower interest rates and the finest economy in the last 35 years under Bill Clinton and Robert Rubin and Alan Greenspan. Policy matters in economics and there was superb policy in many respects.

[DJM]

Bawdyscot said; "My question is why should the president get any credit for how the economy is doing, whether good or bad?" and I agree that the question should be asked, but not just about presidents, also about CEOs etc.

[Dave Schuler]

It seems to me the question at this point is what can be done? How can we improve the economic futures of most Americans? There are two different strategies for increasing income equality: seeing to it that the bottom 99% get more or seeing to it that the top 1% get less. I'm more concerned that I'm not getting ahead than that Bill Gates is.

Education is the most common prescription. I don't see the connection between the problem described in Dr. Krugman's article and that solution. Did the top 1% of income earners get that way through education?

Protectionism? I can see how that will reduce the incomes of the ultra-wealthy but it's not as clear to me how that will raise the incomes of the rest of us.

So, what's the prescription?

[DJM]

*Assuming* that current policy is responsible for current results is where the problem arises I believe. The only way we can be sure it is the result of the policy of the current administration is a realistic analysis and that is failing in the face of secretive, authoritarian, partisan politics without the traditional checks and balances.

[Bruce Wilder]

"My question is why should the president get any credit for how the economy is doing, whether good or bad?"

Because policy matters.

I don't know if Krugman touched on this in the omitted portions, but the meme that attributes changes in the distribution of income to the "economic weather" (i.e. impersonal and vague references to "trends" and "technological change")and not to government policy is pure crap. (Sorry, Bawdyscot, no personal offense intended.)

There are a number of business pundits, like Robert Samuelson, who roll out this thesis regularly, in order to obscure very real consequences of differences in economic policies. It is nonsense, intended to benefit the worst kinds of Republicans.

Just as a matter of economic theory, the distribution of income is tied intimately to the distribution of risk and power. The current and unmistakeable trends in the distribution of income are
1.) huge increases in "compensation" for top corporate executives;
2.) the rising cost of medical care.

Both of those are very political. The pace of medical cost increases is very much tied to the fact that Big Pharma, along with Big Media and Big Oil, practically owns the current Republican Congress.

Did I mention Bush's tax cuts for the very wealthy, which have reduced taxes on investment income to very low levels? Did I mention the decline in unionization, which is being pushed by a series of anti-union rulings from the NLRB? Or, the decline in corporate pensions? Did you notice the Bush SEC appointee rationalizing the back-dating of stock options?

Or, that Bush's big priority is a Social Security reform, the main effect of which would be a huge redistribution of income from the poor and middle class to the rich?

[DJM]

Not to mention spin and the trouble that adds to honest fact checking.

[Blissex]

«On Monday and Tuesday, about half the 50 laborers who showed up were hired to paint, garden, dig swimming pools, lay foundations or hang drywall. In the spring, regulars on the corner said, the percentage of those hired is greater.»

Hehehe. Unionization works.

Of course these guys are lowering the potential of the economy: if they reduced their wages to $5/h from $15/h probably all of them, instead of half of them, would be hired every day, and ''everybody'' would be ahead. Let's assume that someone hiring a workers expects the value of their work to them to be $5/h greater than what they pay:

case A costs: 25w * 8h * $15/h => $3,000/d
case A benefits: 25w * 8h * $20/h => $4,000/d

case B costs: 50w * 8h * $5/h => $2,000/d
case B benefits: 25w * 8h * $20/h + 25w * 8h * $10/h => $6,000/d

In case B, obviously economic welfare for ''everybody'' is much greater than in case A. :-) And yes, this is how things work out in practice.

[Blissex]

Before people jump on the example above, think carefully about your criticism, because the example above is well constructed...

However let me give you some warnings:

* In the "case A costs:" there is a ''deliberate mistake''.

* There is another ''deliberate mistake'' in "case B benefits".

* That the "value of their work to them to be $5/h greater" is not essential, as long as there is a margin of some sort.

* That lowering the price of an hour of work by three times increases sales by twice is not essential, as long at the ratio is less then 1.

I dearly hope that someone makes my day and spots and attacks either of the ''deliberate mistakes'' :-).

[DSC]

This is frustrating. I was reading this thinking that I agree with most of what he is saying, but I would really like it if he would propose something that could be done to maintain the high growth rates while improving the well being of the lower and middle classes. I even got excited when he said "Can anything be done to spread the benefits of a growing economy more widely? Of course. A good start would be to..." But apparently his plan to help the 95% of americans who are not doing better is to increase the minimum wage, which I believe effects about 3% of the population.

[midwesterner]

Protectionism? I can see how that will reduce the incomes of the ultra-wealthy but it's not as clear to me how that will raise the incomes of the rest of us.

I think the answer to Dave's question depends on the type of protectionism, tariff, import quotas, etc. Nevertheless, if the wages of Chinese workers are artificially (by protectionism) increased then U.S. workers can then be given leverage to increase there wages since it would be cheaper to high local labor than Chinese labor.

[Lord]

Nevertheless, if the wages of Chinese workers are artificially (by protectionism)

Actually, it would be counter-protectionism since China undervalues its currency to maintain its advantage.

[JoshK]

It's funny how people who want to "prove" that people are worse off today exclude the costs of benefits. It's funny that this is usually the same group that likes the tort lawyers who spend their time suing the doctors.

[jalrin]

JoshK,

It is not what is spent on benefits that matters. It is the value of what they buy. With 401(k)s replacing defined benefit pensions, the retirement benefits are worth less than they used to be. Health care benefits that do not cover as much even with higher premiums have the same problem.

The analysis can be put this way: my grandfather had a defined benefit pension plan that provided a guarranteed benefit for his life with a survivor's benefit that has been able to provide for my grnadmother even after he died. I will be lucky to get a 401(K) that will provide a piece of what he got even though my field makes a lot more money than his did.

I fail to see what any of this has to do with doctors not being immune from the same tort laws that apply to lawyers, accountants, engineers, and everybody else.

[save_the_rustbelt]

Joshk:

That certainly came out of the clear blue sky.

In one brief post you came up with two assertions about other people you could not prove if your life depended on it.

[anne]

Funny thing about benefits, for if wages have barely kept pace with inflation since 2001, benefits have have slowly eroded with health care benefits a signal problem. Another funny thing, is study on study showing no relation between medical costs and medical mal-practice law suits, but who needs protection against medical mal-practice anyway?

[anne]

How much subtle erosion of pension benefits has there been these last 5 years, both indirectly as pension plans are switched from defined benefit to defined contribution and directly as defined benefits have been reduced, I wonder :) But, the real real real loss of benefits is in health care, no fault of lawyers. Health care....

[midwesterner]

I'm an attorney and I certainly don't think that tort (not a PI attorney) reform would have any bering on the price of medical services. Anne is correct that study after study has shown that no correlation exists between med-mal insurance and medical increases. Beyond that the real question is what sort of legal system do we want, an open one where any party that is possibly injured can sue (ie contigency fees) or one where you have to pay up front. Paying up front benefits the rich. I can tell you that many people would benefit from estate planning but since it can't be taken on a contigency basis generally only the well to do can afford. If you limit med-mal what do you tell the person who got the wrong organ removed. Oh well your too poor to afford an attorney so tough luck. Don't think that attacking tort attorneys doesn't have any think to do with the American Association of Trial Lawyers supporting Democrats. Its easy for Republicans to place blame on attorney: (1) this lobby supports dems; (2) two it deflects why costs are really increasing. Finally, the real reasons that medical expenses are going up are new machines and the supply of doctors. No new med schools have been opened recently but the demand for doctors has skyrocketed. What do you think that means?

[Nelson]

With 401(k)s replacing defined benefit pensions, the retirement benefits are worth less than they used to be.

Not necessarily. Defined benefit plans are just a promise that may or may not be fulfilled. Basically they're "free" to the unscrupulous employer. Promises don't cost anything, and the CEO that made them will more than likely be retired by the time people want to start collecting. I'd rather have a defined contribution plan that puts real employer money into *my* retirement account and take my chances with the stock (or bond) markets as a whole over the long term rather than rely on the survivability and financial health of the single company that promised me the pension.

Also, non-executive pensions should have higher priority than creditors for bankruptcy filings. Too many times this procedure is used to break promises of the past to make executives rich.

[Tymbrimi]

Dear Anne,

Paul Krugman's analysis was that it was neither tax increases nor spending retraint that led to deficit reduction. It was mostly economic growth and somewhat the stock market bubble. Krugman, of course, did not realize he was just validating President Reagan's assertion that we would grow our way out of the deficit. LOL!

Anne, did you know that marginal rates were generally lower under Clinton than under Reagan?

By the way, thanks for posting the article about wages at the bottom rising so high due to full employment, the right way to raise wages. :)

[anne]

Not quite; the problem is not having a government deficit but rather a government deficit that grows faster than the economy can grow and grows fast enough that realistic spending cuts cannot significantly slow the growth of the deficit. That was precisely the case early in the 1990s, and is the case now. We could not have grown out of the deficit then and cannot now, though the deficit now is less of a problem for the time being because we are coming from a surplus in 2000. Supply side economics simply does not work. I am not now worried about the deficit, nor is Warren Buffett, but there will be a time when only tax increases can limit deficit growth.

[anne]

Generating healthy labor demand is always desirable as policy, but labor demand will not as such insure a reasonable or desirable income distribution for labor. That takes policy, and policy now is designed to accentuate income and wealth inequality and is doing just that.

[ilsm]

Tymbimi;

There you go again.

Exactly what did St Ronald say about growth and deficits.

I will help: what did he do?

[anne]

Dean Baker is taking a tact somewhat along the line of STR:

The sense I have is that Warren Buffett is making the same argument about the 1990s, that the revenue increase was artificial and could not last while the surplus was not in itself healthy, stock market imbalances were dangerous, and the trade deficit was inherently destabilizing. Where I had taken a Robert Rubin approach to the trade deficit and focused on the ease with which we were importing capital, the trade deficit was nonetheless becoming ever more of a problem.

[Blissex]

«It's funny how people who want to "prove" that people are worse off today»

Worse off today in which terms? Nominal? After inflation? As a percentage of GDP?

Executive management compensation, we are happy to report, has more than kept up with inflation, and has grown much faster than GDP. The risk of pauperization for executive management has been avoided, thanks to the concern of USA companies for their valuable employees.

«exclude the costs of benefits.»

Well, even if many companies try to exclude the cost of benefits from their executive compensation reports, their SEC filings often force them to show that they are still paying generous and ever rising benefits to executive management, currently often amounting to over 30% of their compensation.

Admittedly benefit inflation for valuable employees is a growing concern, but companies are fighting hard to retain them and thus market conditions force them that way.

As to ''unpeople'', the ballast that companies reluctantly yet generously still hire to perform menial and valueless tasks, fortunately benefits are becoming less of a burden, as an increasing percentage of them (and we are happy to report, 100% of illegal immigrants) justly deserve none whatsoever, and in any case thanks to valuable innovations in the reduction of their provision their overall cost is decreasing faster than their unit cost.

The switch from final salary to defined benefit pensions, where they apply at all, has more than halved the resources wasted on this regrettable and obsolete expense.

This of course applies to private sector workers; the ever inefficient public sector still pays extraordinarily generous benefits (often amounting to an extra 30% tax free on top of salary) to all its employees, a classic example of government waste.

[Blissex]

«"More trade will make us more prosperous."
oops!»

OH please please please don't attack the obvious. It is obvious that more trade makes people more prosperous!

The real issue is whom it makes more prosperous, and the answer is: those with the greatest leverage.

The problem with trade is that sometimes it reduces the relative leverage of some categories, and thus not only they don't benefit from trade, but their absolute, not just their relative, position deteriorates.

The solution is not to abolish trade, but to increase the leverage of those categories. The discussion should not be on the benefits of trade, that are pretty easy to demonstrate and that are abundant, but on how to improve in a realistic amount the relative leverage of those categories that otherwise lose out.

This usually means associations, politics, contributions and voting, and is something that the sponsoring base of the republicans (chambers of commerce, sector guilds, business roundtable) understands this extraordinarily well. Wake up!

Protectionism sure might increase the relative leverage of some categories, but any non trivial amount causes great damage.

[helix]

What it really comes down to is... Do American Workers deserve to have refrigerators?

The worker says "I work for the capitalist all day five days a week for the majority of my adult life and I don't even get a refirgerator?"

The capitalist says, "I can get these shirts made real cheap in Saipan because the people there don't have refrigerators so rents are lower. Why should I pay some lazy American worker more just so he can rent a house with a refrigerator?"

[save_the_rustbelt]

"...The real issue is whom it makes more prosperous, and the answer is: those with the greatest leverage...."

Of course Blissex is correct, I just felt the need for a little moment of sarcasm.

The real statement should be:

1) trade makes the country as a whole more prosperous
2) trade makes some individuals much more prosperous
3) trade makes some individuals much less prosperous

Krugman and Rubin seem to be discovering this for real, not just as theory.

[Tymbrimi]

Anne, deficits as a percentage of GDP were huge under Reagan, much larger than under GW Bush. As for Krugman's analysis, all I can tell you is what he said. I was surprised by his analysis, and that he would report it. :)

[dd]

Protectionism has many forms and the most prominent is the corporation, a government created fictional entity imbued with perpetual life and personhood that shields its owners from individual liablity and reponsiblity; and yet limits loss to invested share value while conferring infinite profit prospects. Any meaningful discussion about spreading the benefits must include this protectionism, its role in the benefits distribution process and whether its protected legal status ought be restructured in the new global world. This is not to condemn corporations, but if everything is on the table; well then everything is on the table.

[Tymbrimi]

BY the way, Anne, growth in federal revenues has been the highest in 25 years since the 2003 tax cuts. Considering soaring energy prices, it is time for more tax cuts. :)

[save_the_rustbelt]

Mankiw (on his blog) implies that Krugman doesn't know how to read the data.

Economist slap fight, oh boy!

[James Kroeger]

Dave Shuler:

It seems to me the question at this point is what can be done? How can we improve the economic futures of most Americans?

There is only one reason for the "25-year decline in wages experienced by most working people in America" and that is insufficient demand for labor. If demand for labor had been high enough during that 25-year period, wages would have increased, instead. This did not happen because (1) Congress did not spend enough money to create the needed demand for labor, and (2) The Fed would have thrown the economy into a recession if the demand for labor had increased enough for market forces to start driving wages up instead of down.

The prescription is for Congress to start spending more money on insfrastructure and other forms of public investment and for the Fed to allow the labor market to start driving wages up again. Like this.

[dryfly]

BY the way, Anne, growth in federal revenues has been the highest in 25 years since the 2003 tax cuts. Considering soaring energy prices, it is time for more tax cuts. :)

Document the numbers. Cite references we can follow. If you use the bottom of 2001 post 9/11 as your staring point reference you lose. Use the top a 1999-2000 as your basis - compare apples to apples (compare period of mature recovery vs period of mature recovery).

Back it up.

[Movie Guy]

INCOME DISPARITIES

Why don't we let the numbers speak for themselves?

Personal Income Inequality Analysis
Center on Budget and Policy Priorities (CBPP)

1990s

State Income Inequality Continued to Grow in Most States in the 1990s,
Despite Economic Growth and Tight Labor Markets
January 18, 2000
CBPP

"Despite the strong economic growth and tight labor markets of recent years, income disparities in most states are significantly greater in the late 1990s than they were during the 1980s. The average income of the lowest-income families grew by less than one percent [1%] from the late 1980s to the late 1990s — a statistically insignificant amount. The average real income of middle income families grew by less than two percent [2%], while the average real income of high income families grew by 15 percent."

"The small growth in the incomes of low-income families over the last decade was not enough to make up for the decline in incomes during the previous decade. Nationwide, from the late 1970s to the late 1990s, the average income of the lowest-income families fell by over six percent [-6%] after adjustment for inflation, and the average real income of the middle fifth of families grew by about five percent [5%]. By contrast, the average real income of the highest-income fifth of families increased by over 30 percent."

1997

Pathbreaking CBO Study Shows Dramatic Increases in Income Disparities in 1980s and 1990s:
An Analysis of the CBO Data
Revised May 31, 2001

Average After-Tax Income by Income Group, 1979 to 1997:
(in 1997 dollars)

Lowest fifth
1979 - $10,900
1989 - $10,800
1997 - $10,800
Percent Change - (-0.9%)
Dollar Change - ($-100)

Second fifth
1979 - $23,300
1989 - $23,400
1997 - $24,700
Percent Change - 6%
Dollar Change - $1,400

Middle fifth
1979 - $33,800
1989 - $35,200
1997 - $37,200
Percent Change - 10.1%
Dollar Change - $3,400

Fourth fifth
1979 - $44,700
1989 - $49,300
1997 - $52,200
Percent Change - 16.8%
Dollar Change - $7,500

Top fifth
1979 - $79,100
1989 - $103,300
1997 - $121,000
Percent Change - 53%
Dollar Change - $41,900

Top 1 Percent
1979 - $263,700
1989 - $498,000
1997 - $677,900
Percent Change - 157.1%
Dollar Change - $414,200

Source: CBPP / Congressional Budget Office

2002

WHAT NEW CBO DATA INDICATE ABOUT LONG-TERM INCOME DISTRIBUTION TRENDS
March 7, 2005
CBPP

Average After-Tax Income by Income Group, 1979 to 2002:
(in 2002 dollars)

Lowest fifth
1979 - $13,200
2002 - $13,800
Percent change - 4.5%
Dollar change - $600

Second fifth
1979 - $26,700
2002 - $29,900
Percent change - 12.0%
Dollar change - $3,200

Middle fifth
1979 - $38,000
2002 - $43,700
Percent change - 15.0%
Dollar change - $5,700

Fourth fifth
1979 - $49,800
2002 - $61,700
Percent change - 23.9%
Dollar change - $11,900

Top fifth
1979 - $87,700
2002 - $130,000
Percent change - 48.2%
Dollar change - $42,300

Top 1 Percent
1979 - $298,900
2002 - $631,700
Percent change - 111.3%
Dollar change - $332,800

Source: CBPP / Congressional Budget Office

2003

NEW CBO DATA INDICATE GROWTH IN LONG-TERM
INCOME INEQUALITY CONTINUES
January 29, 2006
CBPP

Average After-Tax Income by Income Group, 1979-2003:
(in 2003 dollars)

Lowest fifth
1979 - $13,500
2003 - $14,100
Percent change - 4.4%
Dollar change - $600

Second fifth
1979 - $27,300
2003 - $30,800
Percent change - 12.8%
Dollar change - $3,500

Middle fifth
1979 - $38,900
2003 - $44,800
Percent change - 15.2%
Dollar change - $5,900

Fourth fifth
1979 - $50,900
2003 - $63,600
Percent change - 25.0%
Dollar change - $11,900

Top fifth
1979 - $89,700
2003 - $138,500
Percent change - 54.4%
Dollar change - $48,800

Top 1 Percent
1979 - $305,800
2003 - $701,500
Percent change - 129.4%
Dollar change - $395,700

Source: CBPP / Congressional Budget Office

2004

NEW DATA SHOW EXTRAORDINARY JUMP IN INCOME CONCENTRATION IN 2004
July 10, 2006
CBPP

"From 2003 to 2004, the average incomes of the bottom 99 percent of households grew by less than 3 percent, after adjusting for inflation. In contrast, the average incomes of the top one percent of households experienced a jump of almost 17 percent, after adjusting for inflation."

"Census data show that real median income fell between 2003 and 2004. Average income is pulled up by gains at the top of the income spectrum; the 3 percent rise among the bottom 99 percent seems to largely reflect gains by households in the top quintile of the income spectrum. In contrast, trends in median income capture the experience of households in the middle of the income spectrum."

"The top one percent of households (those with annual incomes above about $315,000 in 2004) garnered 36 percent of the income gains in 2004."

"The share of the pre-tax income in the nation that goes to the top one percent of households increased from 17.5 percent in 2003 to 19.5 percent in 2004. Only five times since 1913 (the first year that this data set covers), and only twice since World War II has the top one percent’s share risen by as much in a single year (in percentage point terms). Each percentage point of income is equivalent to $68 billion in 2004."

"The share of total U.S. income that the top one percent of households received in 2004 was greater than the share it received in any prior year since 1929, except for 1999 and 2000."

>

[Movie Guy]

1979-2003 Capital Income Analysis

NEW, UNNOTICED CBO DATA SHOW CAPITAL INCOME HAS BECOME MUCH MORE CONCENTRATED AT THE TOP
January 29, 2006
CBPP

The capital income that CBO analyzed consists of four sources: interest, dividends, rents, and capital gains.

Capital Income by Income Group:

1980
Lowest fifth - 1.8%
Second fifth - 3.9%
Middle fifth - 7.0%
Fourth fifth - 11.3%
Top fifth - 75.5%
Top 1 Percent - 35.6%

1984
Lowest fifth - 1.9%
Second fifth - 3.8%
Middle fifth - 7.5%
Fourth fifth - 12.7%
Top fifth - 73.2%
Top 1 Percent - 38.5%

1988
Lowest fifth - 1.2%
Second fifth - 3.4%
Middle fifth - 7.5%
Fourth fifth - 11.6%
Top fifth - 74.9%
Top 1 Percent - 40.7%

1992
Lowest fifth - 1.3%
Second fifth - 3.2%
Middle fifth - 6.9%
Fourth fifth - 10.8%
Top fifth - 76.4%
Top 1 Percent - 40.7%

1994
Lowest fifth - 1.0%
Second fifth - 2.7%
Middle fifth - 6.2%
Fourth fifth - 10.1%
Top fifth - 78.5%
Top 1 Percent - 44.5%

1996
Lowest fifth - 0.9%
Second fifth - 2.4%
Middle fifth - 5.8%
Fourth fifth - 9.7%
Top fifth - 80.1%
Top 1 Percent - 44.5%

1998
Lowest fifth - 0.8%
Second fifth - 2.2%
Middle fifth - 5.4%
Fourth fifth - 8.7%
Top fifth - 82.0%
Top 1 Percent - 47.9%

2000
Lowest fifth - 0.9%
Second fifth - 2.1%
Middle fifth - 5.3%
Fourth fifth - 8.0%
Top fifth - 82.9%
Top 1 Percent - 49.1%

2002
Lowest fifth - 0.7%
Second fifth - 1.9%
Middle fifth - 5.2%
Fourth fifth - 7.1%
Top fifth - 83.4%
Top 1 Percent - 53.4%

2003
Lowest fifth - 0.6%
Second fifth - 1.6%
Middle fifth - 4.3%
Fourth fifth - 6.1%
Top fifth - 85.8%
Top 1 Percent - 57.5%

[Cyrille]

Well, Blissex, to start with, it seems that your costs and benefits do not relate to everybody, but merely to the people employing the workers.
Surely in "everybody" we should include the workers themselves!

[yartrebo]

Trade can make the world as a whole worse off too. It is more efficient (in terms of hours labored and energy needed) to make steel in Illinois from midwest iron ore and coal for use in the US market than ship iron ore from Australia for use in Chinese blast furnaces for export to the US.

This particular trading pattern hurts those who lose more than it benefits the winners, as the substantial extra transportation has to be paid for and the US actually has the comparative advantage in steel production (US has more plentiful raw materials while China must import while both have surplus blue-collar workers desperately looking for work).

[Devang]

Nelson is right, I'd rather have a defined benefits (401K stock) plan as well, but I want a BIGGER share of that delicious sweet sweet pie. With the current tax cuts thrown in. The best companies matched between 2-4% a decade ago if I remember right, now some match upto 6%. Small improvement if one at all adopted by I have no idea how many companies outside Silicon Valley. I won't even get into option handouts to the management. At a time when corporate profits are soaring, something like this seems right for corporations to do. Sam Walton had it right, he gave his original employees stock in the company, compare that with today's walmart. It's a pity, and a case study in the wrongs of "corporate protectionism".

One wonders why so many students are and have been fillinf MBA and finance schools, it's because becoming engineers is harder (you can't really convince me otherwise), and still pays between $50-80k starting. The 80k/year is petroleum engineering for Exxon. I'm not even joking. Krugman is right, the middle/upper-middle class hasn't gotten much in the economy and the problem isn't education. I've found this issue increasingly intriguing as I weigh job offers in electrical engineering.

BY the way, Anne, growth in federal revenues has been the highest in 25 years since the 2003 tax cuts. Considering soaring energy prices, it is time for more tax cuts. :)

I've triend very hard to look for a Krugman which made the point that the tax cuts prove the point that if you tax the rich more the revenue increases. If you consider the income inequality, and the tax rates, the rich have paid more because they've earned more. I don't know why I can't seem to find it. Perhaps I'm completely imagining things. It wouldn't be the first time.

yartrebo's point is plainly worth repeating since it does demostrate the pitfalls of certain free but not completely fair trade all too well in ordinary terms.

[DJM]

before I head out this morning, let me throw a comment that I am sure will get me attacked again but what the heck...I know it is extremely one sided but most arguments are these days;
from an article called "Orwellian Economics";
Currently, the Party uses the phrase "Gross Domestic Product" as if people were rolling up their sleeves to build machines and harvest crops. But increases in "GDP" these days come from consumption, not production. And the bad news gets worse: the consumption is not coming from savings, but rather from credit-card debt. In a giant circle of nonsense, this ends up increasing our national "GDP."

The housing boom accounts for much of the economic "growth," but few people realize that "home owners" have little or no equity in their homes, and that each move in the creative-financing shell game (between banks, mortgage companies and speculators) only adds to the mighty "GDP."

About 5 - 10% of GDP, as it turns out, is Walmart - a tsunami of cheap Asian stuff once made in the United States. Apparently, there is money to be made hollowing out America's middle class. The failed-but-somehow-eternal war in Iraq also gets factored into the GDP. Halliburton, arms merchants, Madison-Avenue propaganda companies - it all gets to be included. So does the Vatican-sized embassy in Baghdad (outsourced) and the permanent military bases there (outsourced).........
Unfortunately, free enterprise has already given way to monopoly capitalism. It's not a trend; it's a done deal. The cars you drive, the gas you buy, the food you eat, the appliances you prepare it with, the clothes you wear, and the media you watch is all traceable to a half-dozen industries in each sector. Previous Republican administrations (Eisenhower, Nixon, Ford) would have taken corrective action in the spirit of Teddy Roosevelt. They would have tried to break the stranglehold of corporate oligarchs on Congress, but the Bush regime's empowers a predatory, parasitic form of capitalism, redistributing wealth from the bottom-up by cutting social programs like student loans and increasing corporate welfare. It's drive-by, gangsta capitalism.

Source: Virtual Citizens
http://www.virtualcitizens.com/bosworth_2006-07-13_economics.html

[anne]

Oh dear, whether growth in tax revenues since 2003 has been the highest or almost or not quite highest makes no difference. Growth in tax revenues declined significantly during the recession and bear stock market years, and growth in revenue increased with the economic recovery and international bull market in stocks and real estate. All that matters is that no matter short term volatility in tax revenue, there is and will be a structural government budget deficit that though it is not a significant problem just now will be a problem as the deficit increases faster than we can grow. Spending on social benefit or social insurance programs is not a problem, though military spending is a problem, but lack of tax revenue will be significant the future problem.

[anne]

Of course, the reason for the decline in the government deficit during the 1990s was enough of a tax increase to allow lower long term interest rates and a resultant increase in economic growth which raised revenue far faster than constrained government spending.

[Tymbrimi]

Well Anne, that is a load of nonsense. Long term rates did not decline under Clinton, they did decline under Reagan, and GW Bush because tax cuts lower rates, and tax increases raise them, just look at the data. As for your fiscal analysis, go argue with Krugman. And EVERYONE knows that in the future, it is SPENDING that is a problem. To say otherwise is to simply be lying. :)

[anne]

Well, as long as anyone wishes to know the history which is important for economists or investors, long term interest rates did indeed decrease cycle by cycle through the 1990s. Actually they began to decrease from the time Paul Volker raised short term rates in dramatic enough fashion to prevent an inflation "psychology" from forming. The bull market in long term bonds from 1980 to 2003 may have been the strongest of the century.

Federal Reserve policy then has everything to do with short term interest rates and much to do with long term rates, while tax cuts, of course, have nothing to do with lowering interest rates and when tax cuts generate structural budget deficits the cuts will of course in time have everything to do with raising long term interest rates.

[anne]

Again, as far as the government budget deficit is concerned, the structural problem now and in the future will be too little revenue and not too much spending, especially not too much spending on social benefit programs, such as on infrastructure or education, or on social insurance, though spending on the tragic lunacy of the occupation of Iraq or on selected military programs leaves ample amounts of spending to cut. Conservatives, of course, make much of spending, never mentioning the needless trillion dollar war we are waging in Iraq, hoping for cuts in social benefit or better cuts in Social Security and Medicare.

[anne]

http://select.nytimes.com/2006/03/20/opinion/20krugman.html

March 20, 2006

Bogus Bush Bashing
By PAUL KRUGMAN

Meanwhile, the continuing allegiance of conservatives to tax cuts as the universal policy elixir prevents them from saying anything about the real sources of the federal budget deficit, in particular Mr. Bush's unprecedented decision to cut taxes in the middle of a war. (My colleague Bob Herbert points out that the Iraq hawks chose to fight a war with other people's children. They chose to fight it with other people's money, too.)

They can't even criticize Mr. Bush for the systematic dishonesty of his budgets. For one thing, that dishonesty has been apparent for five years. More than that, some prominent conservative commentators actually celebrated the administration's dishonesty. In 2001 Time.com blogger Andrew Sullivan, writing in The New Republic, conceded that Mr. Bush wasn't truthful about his economic policies. But Mr. Sullivan approved of the deception: "Bush has to obfuscate his real goals of reducing spending with the smokescreen of 'compassionate conservatism.' " As Berkeley's Brad DeLong puts it on his blog, conservatives knew that Mr. Bush was lying about the budget, but they thought they were in on the con.

So what's left? Well, it's safe for conservatives to criticize Mr. Bush for presiding over runaway growth in domestic spending, because that implies that he betrayed his conservative supporters. There's only one problem with this criticism: it's not true.

It's true that federal spending as a percentage of G.D.P. rose between 2001 and 2005. But the great bulk of this increase was accounted for by increased spending on defense and homeland security, including the costs of the Iraq war, and by rising health care costs.

Conservatives aren't criticizing Mr. Bush for his defense spending. Since the Medicare drug program didn't start until 2006, the Bush administration can't be blamed for the rise in health care costs before then. Whatever other fiscal excesses took place weren't large enough to play more than a marginal role in spending growth.

So where does the notion of Bush the big spender come from? In a direct sense it comes largely from Brian Riedl of the Heritage Foundation, who issued a report last fall alleging that government spending was out of control. Mr. Riedl is very good at his job; his report shifts artfully back and forth among various measures of spending (nominal, real, total, domestic, discretionary, domestic discretionary), managing to convey the false impression that soaring spending on domestic social programs is a major cause of the federal budget deficit without literally lying.

But the reason conservatives fall for the Heritage spin is that it suits their purposes....

[Tymbrimi]

Dear Anne, nobody takes seriously your theory that deficits that are single digits percentages of GDP, especially when accompanied by supply-side tax cuts. The empirical evidence, as you have admitted, disproves it. Supply-side tax cuts diminish the need for borrowing, as more money is available internally for investment. Out of curiousity, what was the 10 year rate when Clinton entered and left office? :)

[Tymbrimi]

Correction:... that deficits that small have any effect on long-term rates. :)