Krugman: The Great Wealth Transfer

At Rolling Stone, "The Great Wealth Transfer" by Paul Krugman. This is shortened quite a bit - the full article is linked:

The Great Wealth Transfer, by Paul Krugman, Rolling Stone: Why doesn't Bush get credit for the strong economy?" That question has been asked over and over again in recent months by political pundits. ... The reason most Americans think the economy is fair to poor is simple: For most Americans, it really is fair to poor. ... Most Americans are little, if any, better off than they were last year and definitely worse off than they were in 2000.

But how is this possible? The economic pie is getting bigger -- how can it be true that most Americans are getting smaller slices? The answer, of course, is that a few people are getting much, much bigger slices. ...

Rising inequality isn't new. The gap between rich and poor started growing before Ronald Reagan took office, and it continued to widen through the Clinton years. But what is happening under Bush is something entirely unprecedented: For the first time in our history, so much growth is being siphoned off to a small, wealthy minority that most Americans are failing to gain ground even during a time of economic growth -- and they know it.

America has never been an egalitarian society, but during the New Deal and the Second World War, government policies and organized labor combined to create a broad and solid middle class. ... But in the 1970s, inequality began increasing again -- slowly at first, then more and more rapidly. ...

The widening gulf between workers and executives is part of a stunning increase in inequality throughout the U.S. economy during the past thirty years. To get a sense of just how dramatic that shift has been, imagine a line of 1,000 people who represent the entire population of America. They are standing in ascending order of income, with the poorest person on the left and the richest person on the right. And their height is proportional to their income -- the richer they are, the taller they are.

Start with 1973. If you assume that a height of six feet represents the average income in that year, the person on the far left side of the line -- representing those Americans living in extreme poverty -- is only sixteen inches tall. By the time you get to the guy at the extreme right, he towers over the line at more than 113 feet.

Now take 2005. The average height has grown from six feet to eight feet, reflecting the modest growth in average incomes over the past generation. And the poorest people on the left side of the line have grown at about the same rate as those near the middle -- the gap between the middle class and the poor, in other words, hasn't changed. But people to the right must have been taking some kind of extreme steroids: The guy at the end of the line is now 560 feet tall, almost five times taller than his 1973 counterpart.

What's useful about this image is that it explodes several comforting myths we like to tell ourselves about what is happening to our society.

MYTH #1: INEQUALITY IS MAINLY A PROBLEM OF POVERTY. According to this view, most Americans are sharing in the economy's growth, with only a small minority at the bottom left behind. That places the onus for change on middle-class Americans who -- so the story goes -- will have to sacrifice some of their prosperity if they want to see poverty alleviated.

But as our line illustrates, that's just plain wrong. It's not only the poor who have fallen behind -- the normal-size people in the middle of the line haven't grown much, either. The real divergence in fortunes is between the great majority of Americans and a very small, extremely wealthy minority at the far right of the line.

MYTH #2: INEQUALITY IS MAINLY A PROBLEM OF EDUCATION. This view -- which I think of as the eighty-twenty fallacy -- is expressed by none other than Alan Greenspan... Last year, Greenspan testified that wage gains were going primarily to skilled professionals with college educations -- "essentially," he said, "the top twenty percent." The other eighty percent -- those with less education -- are stuck in routine jobs being replaced by computers or lost to imports. Inequality, Greenspan concluded, is ultimately "an education problem."

It's a good story with a comforting conclusion: Education is the answer. But it's all wrong. A closer look at our line of Americans reveals why. ... Almost all of the gains over the past thirty years have gone to the fifty people at the very end of the line. Being highly educated won't make you into a winner in today's U.S. economy. At best, it makes you somewhat less of a loser.

MYTH #3: INEQUALITY DOESN'T REALLY MATTER. In this view, America is the land of opportunity, where a poor young man or woman can vault into the upper class. In fact, ... America actually has less social mobility than other advanced countries: These days, Horatio Alger has moved to Canada or Finland. ...

Not only can few Americans hope to join the ranks of the rich, no matter how well educated or hardworking they may be -- their opportunities to do so are actually shrinking. ...

It's no coincidence that ringing endorsements of greed began to be heard at the same time that the actual incomes of America's rich began to soar. In part, the new pro-greed ideology was a way of rationalizing what was already happening. But it was also, to an important extent, a cause of the phenomenon. In the past thirty years, right-wing foundations have devoted enormous resources to promoting this agenda, building a far-reaching network of think tanks, media outlets and conservative scholars to legitimize higher levels of inequality. ...

Although corporate executives have always had the power to pay themselves lavishly, their self-enrichment was limited by what Lucian Bebchuk, Jesse Fried and David Walker -- the leading experts on exploding executive paychecks -- call the "outrage constraint." ...

Lately, however, we have experienced a death of outrage. Thanks to the right's well-funded and organized effort, corporate executives now feel no shame in lining their pockets with huge bonuses and gigantic stock options. Such self-dealing is justified, they say: Greed is what made America great...

At the same time, there has been a concerted attack on the institutions that have helped moderate inequality -- in particular, unions. ...[T]oday, in the era of Wal-Mart, fewer than one in eleven workers in the private sector is organized -- effectively preventing hundreds of thousands of working Americans from joining the middle class.

Why isn't Wal-Mart unionized? The answer is simple and brutal: Business interests went on the offensive against unions. And we're not talking about gentle persuasion; we're talking about hardball tactics. During the late 1970s and early 1980s, at least one in every twenty workers who voted for a union was illegally fired; some estimates put the number as high as one in eight. And once Ronald Reagan took office, the anti-union campaign was aided and abetted by political support at the highest levels.

Unions weren't the only institution that fostered income equality during the generation that followed the Great Compression. The creation of a national minimum wage also set a benchmark for the entire economy, boosting the bargaining position of workers. But under Reagan, Congress failed to raise the minimum wage...

After Reagan left office, there was a partial reversal of his anti-labor policies. ... But then came Bush the Second -- and the balance of power shifted against workers and the middle class to a degree not seen since the Gilded Age. ...

Under Bush, the economy has been growing at a reasonable pace for the past three years. But most Americans have failed to benefit from that growth. ...

There are four ways, in particular, that the Bush administration has helped make the poor poorer and the rich richer.

First, like Reagan, Bush has stood firmly against any increase in the minimum wage, even as inflation erodes the value of a dollar...

Second, again like Reagan, Bush has used the government's power to make it harder for workers to organize. ...

Third, the administration effectively blocked what might have been a post-Enron backlash against self-dealing corporate insiders. ... With Americans focused on the war, CEOs are once again rewarding themselves at impressive -- and unprecedented -- levels.

Finally, there's the government's most direct method of affecting incomes: taxes. In this arena, Bush has made sure that the rich pay lower taxes than they have in decades. ... It's easy to get confused about the Bush tax cuts. For one thing, they are designed to confuse. The core of the Bush policy involves cutting taxes on high incomes, especially on the income wealthy Americans receive from capital gains and dividends. ... But there are some middle-class "sweeteners" thrown in, so the administration can point to a few ordinary American families who have received significant tax cuts.

Furthermore, the administration has engaged in a systematic campaign of disinformation about whose taxes have been cut. ... [O]fficial reports on taxes under Bush are textbook examples of how to mislead with statistics...

In reality, only a few middle-class families received a significant tax cut under Bush. But every wealthy American -- especially those who live off of stock earnings or their inheritance -- got a big tax cut. ... Truly, this is a very good time to be one of the have mores. ...

Oh, one last thing: What about the claim that the Bush tax cuts did wonders for economic growth? In fact, job creation has been much slower under Bush than under Clinton, and overall growth since 2003 is largely the result of the huge housing boom, which has more to do with low interest rates than with taxes. ....

A generation ago the distribution of income in the United States didn't look all that different from that of other advanced countries. ... Today, we're completely out of line with other advanced countries. ... These days, to find societies as unequal as the United States you have to look beyond the advanced world, to Latin America. And if that comparison doesn't frighten you, it should. ...

In addition, the statistical evidence shows, unequal societies tend to be corrupt societies. When there are huge disparities in wealth, the rich have both the motive and the means to corrupt the system on their behalf. ...

As the past six years demonstrate, such political corruption only worsens as economic inequality rises. Indeed, the gap between rich and poor doesn't just mean that few Americans share in the benefits of economic growth -- it also undermines the sense of shared experience that binds us together as a nation. "Trust is based upon the belief that we are all in this together, part of a 'moral community,' " writes Eric Uslaner, a political scientist at the University of Maryland... "It is tough to convince people in a highly stratified society that the rich and the poor share common values, much less a common fate."

In the end, the effects of our growing economic inequality go far beyond dollars and cents. This, ultimately, is the most pressing question we face as a society today: Will the United States go down the path that Latin America followed -- one that leads to ever-growing disparity in political power as well as in income? The United States doesn't have Third World levels of economic inequality -- yet. But it is not hard to foresee, in the current state of our political and economic scene, the outline of a transformation into a permanently unequal society -- one that locks in and perpetuates the drastic economic polarization that is already dangerously far advanced.

Update: PGL at Angry Bear comments on Krugman's article.

Comments

[save_the_rustbelt]

Goldman celebrates most profitable year
Financial Times

By Ben White in New York

Updated: 1:41 a.m. ET Dec 13, 2006
Goldman Sachs on Tuesday closed the books on the most profitable year ever for a Wall Street investment bank, nearly doubling fourth-quarter earnings on the strength of big trading gains, lucrative investments in Asia and a reduction in compensation expense

[save_the_rustbelt]

Krugman again failed to mention how his more trade at all costs plays into this equation.

[realpc]

"job creation has been much slower under Bush than under Clinton"

Did Krugman ever hear about the internet boom or 9/11? I guess not.

Yes, inequality tends to grow in the US, because there is no natural limit to how much wealth an individual can acquire. Not at all similar to a person's height.
The extreme wealth of a small number of CEOs, actors, athletes, etc., has caused most of the current inequality.
It has not hurt the middle class, in spite of what Krugman implies. And, as he says, it started long before the G.W.Bush administration. Actually, it started soon after this country was born.

Equality cannot be maintained, although I don't disagree with the idea of reigning it in now and then.

But Krugman's tone sounds increasingly like socialist propaganda. You can tell he's been reading a lot of Chomsky -- learning to distort and select, and to use words like "stunning."

[anne]

Yes; stunningly, reading Paul Krugman, I was stunned to realize how often the deviant socialist word "stunning" has been set stunningly in passages stunningly designed to turn us all to little socialists with big socialists to stunningly grow as grow they do. Was this, by the way, the Paul Krugman who has been reading Noam Chomsky, the stunning Noam Chomsky who spoke to the cadets at West Point a while ago and received quite a stunning ovation? That Paul Krugman, stunned by that Noam Chomsky? No. Noam Chomsky at West Point? No, too stunningly stunning.

[calmo]

O my dear realpcEquality cannot be maintained, although I don't disagree with the idea of reigning it in now and thenwhat would we ever do without you? Did you know that in Don't Forget Poland, the citizens were so enamoured with monarchy that since that lineage died out, they hold elections for the postion King/Queen?
As soon as the current reign dies out here I'm voting for you, and not those other stunning beauties.
Ok, you figure alot of economists read Rolling Stone? Do boomers still read Rolling Stone trying to keep up with level of denial that they are both past it?

[save_the_rustbelt]

Realpc:

No one has ever suggested total equality.

The middle class is being hurt, as the wealthy own the government and use it to protect their interests (all the while screaming about free markets).

Try an experiment I have tried. Call and ask to speak with your Congressman.

Unless you are a lobbyist or a major campaign donor you will likely never get close to your Congressman, of either party. Your call will be screened and you will foisted off onto a flunky staffer.

I know several people who have the home number of my Congressman and both Senators. What do they have I don't? Wealth.

This is nothing new, just taken to an extreme level.

[spencer]

Yes -- job creation was less under bush then under clinton. But they were both less then the historic norm.

From 1958 to 82 (excluding the aborted 1980 recovery)
on average two years from the economic trough employment was up over 6% from the bottom.

Under Clinton it took 43 months for employment to increase some 6% from the bottom.

Currently, we are some 61 months from the bottom and employment is now 3.9% higher then at the trough. The historic norm is for employment to expand 3.9% in 15 months after the bottom. So this cycle it has taken 61 months to generate the employment gains it use to take 15 months to achieve.

Even if you take the Republican talking points and ignore the first 2 and a half years of the Bush administration it took to get back to where employment was at the economic bottom employment growth under Bush has been worse then normal. We are now 30 months from when employment stated growing under Bush and employment is up 3.7% from that point -- this compared to the historic norm of 6% in 24 months.

No matter how you spin it, employment growth this economic cycle has been the weakest of any cycle on record by a massive margin.

Don't you guys ever look at the facts before you start pontificating.

[spencer]

P.s. under Clinton employment rose 9.5% after 61 months compared to 3.9% for Bush after 61 months.

[tom]

I don't understand the title. Letting people keep more of their own money that they themselves earned is not a wealth transfer. The government does not own you or all of your money, although liberals like to think that it does.

[tom]

How many of the 9.5% did Bill Clinton hire?

[anne]

Spencer:

"No matter how you spin it, employment growth this economic cycle has been the weakest of any cycle on record by a massive margin.

"Don't you guys ever look at the facts before you start pontificating."

That is the point of being conservative Republicans, facts never ever matter.

[spencer]

Realpe -- check your data--

Income inequality in the US and most other OECD countries fell sharply in the 1930s and 1940s
and was essentially flat from 1950 to 1980.

Now can you reconcile this with your statement that inequality always rises in the US.

I have known of Krugman since he was at the CEA under Reagan and I know of essentially no examples where his analysis has been proven factually incorrect despite what some of the world's stupidest people have tried to prove.

[Movie Guy]

T R A D E

G L O B A L I Z A T I O N

A D V A N C E D . G L O B A L . T R A D E

G L O B A L . C O M P E T I T I O N . P R E S S U R E S

O F F S H O R I N G

I L L E G A L . I M M I G R A T I O N

These considerations were not touched in Paul Krugman's article.

Not once.

Come on.

[spencer]

Actually tom clinton hired fewer then bush has.

Remember, one of the greatest increases in employment under bush has come from expanded government employment.

Took that it a different direction then you expected.

[tom]

Spencer,

You are on to something. The economy does better when the government is shrinking as a share of GDP than when it is expanding as a share of GDP.

[callahan]

I like this stuff, I can consider myself less of a loser than I otherwise would if I were not working in the "high tech" area as a computer programmer. This job is now comparable in wages to that of a gasoline station attendant in the fifties, where the attendant is a little less of a loser than me.

Losing less than our poorest while we all watch the great tall rich guys get richer, and richer, and richer, and taller, a lot taller.

Yup somthing is outawhack.

[spencer]

Tom -- that is exctly what it did under clinton.
He recognized the boom and implemented the right policies -- get out of the way and let it happen.

Clinton actually did more for free market capitalism then every crony capitalist this adminstration brought to washington ever did.

Bush would not know a free market if it bit him in the A**.

[Cyril Morong]

Are people suffering in this country? Has the standard of living been falling for a large segment of the population? I don't think so.

Per capita consumption in 2005, adjusted for inflation and taking out health care spending, was double what it was in 1970 (details on this below). It is up 8.27% from 2000-2005.

But maybe it is only the rich who are consuming more. I don't think this is likely. The top 20% (rich) of income earners consumed about 5.5 times as much as the bottom 20% (poor) in 1970 (I am estimating this from a graph in Roger LeRoy Miller's micro principles book). In both 2000 and 2005, the ratio looks to be about 6.5. So in 1970, if a rich person spent 20,000 on consumption, the poor person spent 3,636 (20,000/5.5). Now suppose the rich person spends 40,000 in 2005. The poor person spends 6,153 (40,000/6.5). That is a 69% increase. But it is actually going to be a little higher since we know the rich people more than double their consumption from 1970-2005. I should be going with more than 40,000. So even the bottom group is consuming alot more today than in 1970 and even a little more than in 2000. People are not worse off.

Details:

Population
1970-203,000,000
2000-282,000,000
2005-296,000,000

Consumption (in 2000 $s)
1970-2,451 billion
2000-6,739 billion
2005-7,841 billion

Health care as a % of GDP
1970-7%
2000-14%
2005,-16% (not quite 16 but I will use that)

Per capita consumption in 2000 $s
1970-12,078
2000-23,899
2005-26,491

then I mutliply each of these numbers times .93, .46 and .84, respectively to remove health spending. By multiplying by .93, for example, you take out the 7%.

1970-11,232
2000-20,553
2005-22,252

Our increases in consumption would be even higher if I left health care in. I took that out just in case anyone said people were simply being forced to spend more money just to protect their health.

I am not trying to dismiss inequality as an issue. But to suggest that a large part of our population is doing worse or has a lower standard of living than what they had in 2000 or a generation ago seems wrong to me.

[ECONOMISTA NON GRATA]

"But it is not hard to foresee, in the current state of our political and economic scene, the outline of a transformation into a permanently unequal society -- one that locks in and perpetuates the drastic economic polarization that is already dangerously far advanced."

This will not happen for the simple reason that this inequality growth is exponential and it's growth will be limited by tolerance. Once this inequality or exploitation becomes intolerant, a great change will occur. Revolutions, violent ones or otherwise, do not evolve in a vacuum.

Our system of government has not been stress tested for many years. So long as any movement adhears to the Constitution and the Bill of Rights, you can call them what you like, I'm all for stress testing the system.

My best regards to all,

Econolicious

[callahan]

Spencer, how tall are you?

Come to Michigan, and I'll show you someone ( a shorty) who is consuming less.

[Ethan]

Actually, Tom, the taxes I pay the government are not my money; they are the government's money. My taxes are what I pay the government for the privilege of being a free American citizen and benefiting from all that government provides -- all the way from free speech, free highways, free fire protection, free police protection, more or less free elections, more or less free capital and goods markets, etc. to a well regulated militia.

Maybe I'm not getting good value for the money I pay the government for its services, but that's a different question. I have often felt I did not get good value for the money I have paid to companies/individuals for the goods and services they provided to me. That, however, doesn't make the money I paid them still "my money". The goods or services couldn't be mine unless I paid the providers the money, and it's their money after I pay it. Taxes? Same thing.

[fiskhus jim]

Krugman says, "Third, the administration effectively blocked what might have been a post-Enron backlash against self-dealing corporate insiders. ... With Americans focused on the war, CEOs are once again rewarding themselves at impressive -- and unprecedented -- levels."

It is also important to note that, not only has the war been a distraction but, the war has been a primary enabler of profiteering by various well-connected CEOs (and other friends of the Bush Crime Family) - including the supposedly ex-CEO currently sitting in the VP's office.

[fiskhus jim]

Hey Ethan -

The problem with hardcore GOPers (and other liars), like Tom, is that they are intellectually incapable of recognizing a concept like "the Commonwealth".

When they see the pool of taxpayer's dollars to be used to "promote the General Welfare" (as required by the Constitution, the supreme law of this Great Republic), those folks only see lots of money for them to steal. They are NOT good citizens of this country; they are, in fact, failed Americans - and, usually, failed Christians.

[tom]

Ethan,

I suppose you would say the money I pay to "Best Buy" is "Best Buy's" money. The fee I pay to "Best Buy" is the for the priveledge of owning a HD TV! How completely absurd!!!

The government doesn't provide "free speech" you nitwit. The government cannot trample on my right of free speech. Nor are highways, police, schools, etc... free. Those things are payed for by the wealth that is created by the people. It is not mana from heaven. The government is good at destroying wealth, not so good at creating it!

[anne]

http://www.nytimes.com/2006/12/12/opinion/12tue2.html?ex=1323579600&en=f5dd4ceb951b887a&ei=5090&partner=rssuserland&emc=rss

December 12, 2006

Consumption Gap

Conservative economists often argue that wage stagnation and income inequality are not as big a threat to Americans' standard of living as they've been made out to be. In their view, how much one buys — rather than how much one makes — is a better measure of economic well-being.

In a recent article in The National Review, researchers at the American Enterprise Institute asserted just that, saying that when you look at how much the middle class is consuming, they're "even doing better than the upper crust."

Why make a fuss over other grim economic statistics if everyone manages to keep buying things?

Here's why. The assertion — that the middle class has out-consumed the "upper crust" during the Bush years — is false, the result of rosy assumptions that turned out to be wrong.

Researchers at two other think tanks, the Center on Budget and Policy Priorities and the Economic Policy Institute, reworked the figures, including newly available spending data for 2005. There is no dispute among the various researchers over the new findings. Over all, consumption is growing. But the growth is unbalanced, consistent with the wide disparity in wages and income that has characterized the Bush years.

Consumer spending by low-income households is way down since 2001. Over the same period, spending by high-income Americans has been robust, supported, in part, by generous tax cuts. In 2005, the top 20 percent of households made 39 percent of all consumer expenditures, the highest share since the government started keeping track in 1984.

The information on middle-income households is mixed, with some data showing a decline in their spending during the Bush era and some showing an increase. But there is no question that spending by the middle class has been weaker in the current economic expansion than in previous recoveries....

[anne]

"Now suppose the rich person spends 40,000 in 2005. The poor person spends 6,153 (40,000/6.5)."

Say what???

[Cyril Morong]

As I said, the table I looked at shows (as I estimate) that the rich spent 6.5 times as much on consumption as the poor. So if you know the consumption of the rich, you divide it by 6.5 to get the consumption of the poor.

[anne]

http://www.cbpp.org/11-28-06inc.htm

November 28, 2006

A Tough Recovery By Any Measure: New Data Show Consumer Expenditures Lag for Low- and Middle-Income Families
By Jared Bernstein and Jason Furman

Data on wages, compensation and income paint a disappointing picture of the current economic expansion, especially from the perspective of low- and middle income families. By most measures, real incomes were lower in 2005 than in the recession year of 2001, and real wages, after rising through mid-2003, fell consistently until very recently.

These unfortunate trends have occurred amid strong productivity growth, which implies that wage and income inequality — and in particular, the gaps between what high-income Americans are receiving and what other Americans are getting — has grown. Recently released Census data show that the top fifth of households received 50.4 percent of the nation's income in 2005, equal to the highest share on record.[1]

Aparna Mathur and Kevin Hassett of the American Enterprise Institute argue in a recent paper that data on consumer spending tell a different — and much rosier — story. They contend that consumer spending data show a rising standard of living for all Americans and a reduction in inequality.[2] Unfortunately, their findings rest on a mistaken use of data on consumer expenditures.

Measured correctly, the consumer expenditure data are consistent with the basic story that the income and wage data tell. The consumer spending data show that disparities in consumption expenditures between high-income households and other Americans are widening and that many Americans are treading water or falling further behind....

[tom]

Some of you liberals might want to take Ethan’s advice that the money you earn is not really your money. So, when you fill out your 1040 (or your 1040EZ, Ethan), on line twenty-two where it asks you to declare your total income, write the number zero. Next to the zero you might want to write an explain to the IRS that the reason why your income is zero is because you don't own any income because it already belongs to the government. And be sure to hire a good tax attorney (with, of course, the government’s money that you didn’t earn and doesn’t belong to you).

[anne]

"Now suppose the rich person spends 40,000 in 2005. The poor person spends 6,153 (40,000/6.5)."

And the rich are poor and the poor are rich and no one needs health care insurance especially those that do not have it and all is well. Yeah.

[Cyril Morong]

I don't think you understand what I was doing by removing the health care expenses. If I left them in, it would show an even bigger increase in per capita consumption and it would make my case even stronger. I was deliberately weakening my case. If you look at my numbers, per capita consumption more than doubles from 1970-2005 if you leave health care in. I took it out because one could easily argue that it is a necessity and spending more on it should not count towards making us better off.

Thank you for posting those links and stories. I will have to check them

[ilsm]

tom,

"You are on to something. The economy does better when the government is shrinking as a share of GDP than when it is expanding as a share of GDP."

I missed what is shrinking as a share of GDP.

Total federal debt is rising as a share.

Government (federal) spending is running about 20% of GDP is that a rise?

Fed taxing is 17% of GDP that may be what is shrinking.

But the debt burden is continuing a climb.

So, what is shrinking?

Or what government do you refer to?

[evagrius]

Here's some real statistics from FRAC,

(http://www.frac.org/).

This is a real good measure of income inequality, IN CONCRETE TERMS! for all the "idiotes" that can't see straight, ( idiot is from Greek meaning someone refusing to participate in the public arena ).

Apologies for the "shouting" but sometimes......

Food Stamp Participation in September Up Over Month
But Below Hurricane Katrina Disaster Aid Levels of Year Earlier

While More Than 8.3 Million More Got Food Stamps than in September 2001, Many Eligible People Were Still Missed

In September 2006 food stamp participation at 26,195,449 persons was up over the month by 62,551 people. The overall caseload for September 2006 was more than 1.2 million persons lower than the prior September, when many Hurricane Katrina victims received disaster food stamp benefits. Still, September 2006 participation levels were more than 8.3 million persons higher than in August 2001. Nonetheless, the Program still is missing nearly four in ten eligible people. At a time when more than 35 million people in the US face a constant struggle against hunger, continuing to strengthen the reach of the Food Stamp Program is vital.

Food Stamp Program growth in recent years reflects continuing wage stagnation, state actions to improve access, the effects of the 2002 food stamp reauthorization implementation, and disaster relief. In late 2005 caseloads grew significantly to serve victims affected by Hurricanes Katrina, Rita and Wilma, but largely have returned to pre-disaster relief levels.

[evagrius]

"Almost all of the gains over the past thirty years have gone to the fifty people at the very end of the line."

So, who are these people and where can we find them?

Do they consume 6.5 times as much as a poor person? Do they s%$t 6.5 times as much as a poor person or eat 6.5 times as much as a poor person? ( re; the old Japanese saying, "one bowl, one tatami".).

Who are these magic fifty?

Why are they so enamored of their wealth that they want to manipulate everything to keep it?

In the Middle Ages, everyone "knew" that the rich faced the same dread Judgement Seat. Everyone knew that Death was the great equalizer. You can't tell a rich man's bones from a poor man's if there's no gold around them and then, the gold gets used and the bones thrown away.

So...who are these fifty and why do they want that wealth?

[maria]

Krugman is absolutely correct, never mind the chatter of those who understand little or nothing about income distribution. Immigration into European nations has not caused equivalent inequality, so one can quickly toss aside that argument. The crux of the problem is taxes. These under Bush have increased inequality greatly, and changing the tax regime is the easiest and fastest way to decrease it. In short it would be a good thing to soak the rich for a change. They can afford it. And turn a deaf ear to all the Ayn Rand and Horatio Alger chitter chatter of the ignorant. PS Well-off friend of mine used to pay about 25% on an income of $300,000. Now he gets $800,000+ from dividends mainly and pays about 7%.

[anne]

Cyril, I completely agree with your analysis which is precisely why I added the health care argument. Conservatives are using consumption to argue that income and supposedly wealth from which income increasingly derives for the wealthier and wealthiest is converging. I am arguing this is a distortion, not your distortion, but a way of tricking out the data. You are fine, however and your example actually useful to trace through.

[maria]

When you talk about income inequality you need to use the Gini Index. In fact Krugman's "illustration" is simply a description of the line of the Gini coefficient. Here is the CIA info re Gini indices of most nations:

https://www.cia.gov/cia/publications/factbook/fields/2172.html

Clearly immigration is not the general cause, nor education or lack of it. The EU has an educated elite but a much lower Gini than the USA.

[anne]

"Now suppose the rich person spends 40,000 in 2005. The poor person spends 6,153 (40,000/6.5)."

Against a $40,000 consumption, a poor person will have to consume more than $6,153. Simply spend $500 a month for rent and we spend $6,000 a year and we have not eaten though we have $153 with which to eat for a year. Utilities, clothing, transportation. Good grief. Suppose we spend $500 a month on rent, utilities, clothing and transportation combined. No food ever because you are slimming, and you have $153 for a year in mad money.

[save_the_rustbelt]

Hey, there is no problem......well, maybe

Fifth of Americans forced into retirement:

NEW YORK (Reuters) - More than a fifth of all Americans are forced into early retirement, usually by layoffs and cutbacks at their companies, according to a study by Sun Life Financial Inc.

"Unanticipated, forced retirement is occurring at an alarming rate, leaving the retirees unprepared," said Mary Fay, head of the Sun Life annuities department. Sun Life conducted the study in conjunction with Harris Interactive, a worldwide polling organization.

Losing their jobs, on average about eight years early, leaves them ineligible for Social Security, unprepared for the future, and with half the savings they had expected for retirement, the study showed......

Comment: sure, this is from an annuity company, and I don't much like annuity companies, but this matches my observations, both in and out of the Rustbelt

[save_the_rustbelt]

Clarification:

When they talk about Social Security inthe full article, they talk about being forced into retirement before age 62, so until then they are ineligible.

Worse yet, they are ineligible for Medicare until 65.

Ugly gap.

[maria]

The reason that several of the Eastern European nations have much lower Ginis than does Western Europe is doubtless due to their years under socialism in which one of the governmental aims was to increase equality of income; this effect still remains. In fact, the success in using government power to reduce inequality cannot be denied. A strong whiff of socialism might well be a good thing for the USA. And the only thing it would require would be the political will to enact and enforce it. Marx was right in thinking that power is what controls the organization of the economy. And the US poor are largely powerless for a number of reasons, including being distracted by "religious" issues as Marx pointed out.

[evagrius]

save_the_rustbelt;

Hah! The Big Burn!

I'm getting more and more cynical about the U.S. It seems that the only "moral value" left is that of the dollar bill.

Somehow, all this will come crashing down.

Why can't people in the U.S. realize that they are in all the same boat, the same reality?

Why is there this obstinate view that somehow, one is exempt from the suffering around, that one will not be in that same place soon in the future?

There may be doubt about the "wages of sin" being visited upon people, ( otherwise known as karma or what goes around comes around), but it's bound to happen as long as the trend you've noticed continues.

[Cyril Morong]

Anne:

I am not saying that 6,153 is what the lowest 20% actually spends on consumption. I just picked some numbers for the top group so I could estimate how much the consumption of the bottom went up. I think it is more than 6,153. I will check on it later.

[maria]

I might also add that the argument that more income equality means less economic growth or dynamism is refuted by numerous examples. Japan, hardly a nation with an undynamic economy, has a Gini quite a bit lower than the USA. And Sweden has a Gini around 25 compared to the US in the mid 40s or higher. Sweden has "socialist" policies that make sure income is more equitably distributed.

[Alex]

The economic recovery has been weak in terms of job growth because of several things. These are that one, the US economy's potential growth rate is slowly declining, as it does in all countries when productivity or labor inputs or both decline in rate of increase. Also, the high productivity of the early 21th century allowed companies to not hire as many workers as they might have otherwise, especially since many people were worried about how the economy would function, so companies kept their wallets closed. That solves the employment bit. As for income inequality in the US, it is easy to understand. One, immigration does have an impact. In California, a third to half of the increase in income inequality is due to hispanic immigration. Technology, by making people in better paid positions better off, also explains some of the story, as does the winner take all global economy, and free trade.

Government policy can't be the issue here. Want to know why? Its so simple; income inequality remained the same from the beginning of the 20th century until World War II, at which point it declined dramatically. Now why did this happen? Well, it can't be the taxes; while the top rate hit 94% in 1943, it was already 80-85% in the late 1930's. An increase in the top rate of 10% would not have done it, and also most middle and working class people ended up being taxed too, so that the wealthy still ended upn with more relative income. Now classical economics, like supply and demand, definitely had an impact. With over ten million people drafted, and the industries humming, low income people saw their wages rise by over half in less than five years, sometimes double. That created the middle class, and more than anything else redistributed income. Also, after the war there was so much money around, those gains stuck, as employment remained low, and people still got good deals on jobs. The one other thing which might have had an impact, although I doubt it, was price controls. Now, if the wealthy made serious paychecks and then those were recinded, they would have been screwed. However, most wealthy people did not work at the time, while those who did got hit with taxes. Could unions have done it? It helped some that unions were legit, but in general only marginally.

So, income inequality fell from 1929 to the 50's and 60's due to World War II demand, something which cannot be replicated. Sounds like poeple should stop talking about carrying ut social experiments that won't work, if you ask me.

[maria]

Here is another useful table, the relative percentages of total income of the top 10% and the bottom 10%.

https://www.cia.gov/cia/publications/factbook/fields/2047.html

USA top is 17 times the bottom
India top is 9.5 times the bottom
China top is 12.7 times the bottom
European Union top is 9.1 times the bottom

[maria]

Not only did the US media lead us into the disaster of Iraq with its slavish acceptance of the lies of the warmongers, it has over the years propagated the idea that "socialism" is beyond wicked and detestable to such a degree that most Americans have been brainwashed into passivity re the greedy plunderings of the US rich. Perhaps the worm is beginning to turn. We can hope. Stay tuned.

[Arne]

Question: Wages tend to increase by smaller amounts as time in a career increases and so older worker get smaller raises than younger workers. Is it possible for the changing demographic of Boomers to have a significant impact on the average wage?

[anne]

"Is it possible for the changing demographic of Boomers to have a significant impact on the average wage?"

No; a fine question but decidedly not.

[anne]

"The economic recovery has been weak in terms of job growth because of several things. These are that one, the US economy's potential growth rate is slowly declining, as it does in all countries when productivity or labor inputs or both decline in rate of increase."

Please, look to relative job creation in western Europe which has been higher than ours since 2001. Productivity however has been just fine. Good grief, as for the rest, the Worl War and the like, phooey.

[tom]

ilsm,

"So, what is shrinking?"
"Or what government do you refer to?"

Federal govt expenditures as a share of GDP shrank during the Clinton adminstration (1993 - 22.5%; 2001 - 19.4) and has been rising under the Bush administration (2002 - 20.1%; 2005 - 20.5%). I lagged the time periods by a year because it takes time for new policies to be enacted. But even without the lag the story remains the same: Fed govt expenditures as a percentage of GDP shrank during Clinton's term and rose under Bush's. There may be debate over the cause of the rising and shrinking share, but those are the facts.

[Bill]

Why should income from investment be taxed at a lower rate than income from work- how did we lose the ability to deduct the interest from debt (except morgages) from our taxes- shouldn't the worker share in productivity gains or do all productivity gains eminate from top management- working class people are being screwed- I understand the very rich thinking this is a good thing- what confuses me are the middle class who apparently think they deserve it.

[calmo]

maria, about those "tops" and "bottoms" that you get from the cia source, you figure 10% is just such an irresistable round number?
There are some (radicals) that feel this doesn't not even start to tell the picture of income or wealth distribution.
Similarly, how well do the Gini coefficients (you have referred to in the past) represent/account for the top 400 billionaires in this country and give us an accurate picture of the distribution of economic goodies?
Is this a measure that is getting more suspect/inadequate as income distributions widen?

[Movie Guy]

Bottom Line

A credible economic review of those factors impacting income equality would include reviews of tax, trade, labor, immigration, education, and social program policies. Any economist who doesn't include considerations related to trade policy and immigration policy has failed to present a realistic presentation.

Those who believe, indicate, or imply that WTO trade policy, U.S. trade policy, advanced global trade, offshoring, legal and illegal immigration, global competitiveness, and other factors related to globalization including investment flows have no impact on U.S. income equality are not presenting the full picture of income inequality considerations.

[Movie Guy]

"I often think of globalization as a gum ball machine for the rich. They put in 50 cents and get back 100 bucks. And all day long they keep standing [there] putting in 50 cents which lands in China and India. ...The only thing they need Americans for is to be gum balls that return the 100 bucks from our evil consumer society. Even worse if these people don't become consumers soon we are all headed into the dumpster." - Jake Summers, EV - Sharing the Gains from Globalization, September 06, 2006

Jake made his post to that thread tonight.

[piglet]

Cyril, the statistics you are trying to derive have many problems. It is not feasible to start out from an average and then try to reconstruct how that average breaks down in differen income groups.

"So even the bottom group is consuming alot more today than in 1970 and even a little more than in 2000. People are not worse off." From your figures, we simply can'.t know whether this is true. I think it is unlikely for the 2000-2006 comparison. When I saw how you dealt with health care cost, I realized another problem.

The share of income spent on health care is not the same for different income groups. The lower middle class will have to spend a far higher percentage on health care than the top earners. (maybe anne was alluding to this fact - I can't quite make it out). Similarly, rising costs of energy and certain other vital expenses eat more of the income of the bottom than of the top. Skyrocketing tuition fees put a big strain on the middle class. Etc. So in order to know whether people are worse off, we would need detailed data about what they are able to spend money on. Are they spending more mnoey on health care, tuition, energy, without getting more value? Then they are hardly better off.

Finally, taking consumption as the benchmark is fundamentally dubious. First, it doesn't have to correlate with quality of life (which is also true for GDP and other one-dimensional monetary measures). It is undisputed that more money is spent on lawyers today than in 1970. This is also consumption, but it doesn't prove that we are "better off" in any meaningful way.

Second, how much of that increasing consumption is credit financed?

[john c. halasz]

Movie Guy:

I'm well inclined to agree with your general point. I would add to your list the declining efficacy of national economic policy levers by governments due to "globaization": estimates stimulus multipliers have declined not just because of changes in theory, but, I think, in reality, due to such factors as the global dispersion of production supply chains, import leakage of domestic demand, and the lack of domestic spillover of export surpluses due to efforts to maintain export shares; monetary policy rates are increasingly constrained by pressures of international financial markets on floating fx rates; and tax and fiscal policies are increasingly constrained by entry/exit options of international financial investments. But, by the same token, whole national economies and their governments do not necessarily compete with each other in the way that firms in markets do. (So the likes of Paul Krugman, "new" trade theorist, would say). There is a such thing as real surpluses, "gains", to be realized from trade, though there remains an issue of "the terms of trade", that is, the proportional sharing of such surpluses between trading partners. The problem labelled "global competitiveness" arises rather from the leverage gained by giant, oligopolistic MNCs, through their "globalization" production platforms, supply chains and distribution channels, over national economies/governments. But for that very reason, there no longer is such a thing as an entirely nationalistic solution to the problem. Unless difficult efforts are made internationally by governments at policy coordination to establish a better regulation of global financial markets, so as to allow better, more efficacious national policy measures over against the leverage exerted by MNCs, I would see little hope of remedy, short of whatever would emerge from the wreckage.

Of course, many neo-classical, "free market" types would vigorously disagree with me, but I would claim, on post-Keynesian grounds, that the issue of the distribution of income is not merely a "political" one, concerned with "soft-headed" notions about equity, but actually concerns the adequacy of real effective aggregate demand and the efficiency in the use and deployment of resources and "factors". A relatively more equal distribution of income effects not just the composition of demand, but also its level, as well as the sources of pressures to ensure the most efficient deployment of resources, whereas the effects of a widely unequal distribution of income would tend to be masked "empirically" by relative price effects. (This could even be argued for environmental issues, inspite of higher levels of real output attending higher demand conditions: with widely unequal income distributions, natural resources would tend to be owned by the wealthy few, who would have little incentive not to savagely exploit them to maximize their short-run gains. in spite of lower overall real prices for them, whereas, with a much more broadly equal distribution of income and demand, many more people would have a say in the various uses of natural resources, there would be much more pressure for their efficient use, and a higher value attached to them in the system of economic values, hence a greater value attached to their sustainable conservation.)

[john c. halasz]

Cyril Morong:

Piglet beat me to the punch, while I was busy diddling with Movie Guy. But, among other things, since we're presumably dealing with statistics about household income, back in the day the labor force participation rate was about 53% compared to a peak of 66% or so, though down maybe 2% recently. Yes, that's all those wimenfolk in the work force, helping to make ends meet. Furthermore, as piglet points out, comsumption levels can be debt financed or financed through asset-dissavings, (especially when there's loose momey asset inflation), so one large pattern that should be discernable in the economic statistics is an increasing level of indebtedness among the broad middle of the income distribution, (since the poorest quintile would have little access to credit or asset-based consumption). That the broad middle is increasedly indebted to the top echelons of the income and wealth distribution is, needless to say, not a sustainable long-run trend.

[maria]

calmo, what makes you think the Gini Index is "getting suspect"? Do you understand what the Gini Index is? I doubt it. The reason it is used worldwide is that it is the best way to compare income distributions across cultural and other boundaries. All the babble about this and that reason for the increasing Gini Index in the USA misses the point that Marx made. (No, Marx is not a bad word). Political power is what ultimately determines the rewards in a society. And in the US the rich have progressively managed to disempower the not-rich. So you can go on all you want about this and that reason. If you take a world view (Americans are pretty provincial), the US is an unfair society because it is one in which those beneath the top have been screwed and confused and kept that way by subtle media propaganda. Political will and power to "socialize" America more would solve the problem fast. But you have the various lobbies of the rich (drug companies are a good example) that pay millions (billions?) to keep that from happening.

[maria]

I might add that if the American consumption society comes to a halt (I would guess it might be abrupt) when China and others decide to stop loaning us the money to overspend our income, there could well be a political groundswell, as in 1932, that would set the US on a more socialist path again. It might require such a shock for the masses to rise up politically and take back the economy.

[john c. halasz]

Maria:

I'd really like to see the chapter and verse citations on that Marx paraphrase. You could use the "Progress Publishers" English translations of the complete Werke, if you'd like.

[a]

"I suppose you would say the money I pay to "Best Buy" is "Best Buy's" money. The fee I pay to "Best Buy" is the for the priveledge of owning a HD TV! How completely absurd!!!"

Have you ever tried to walk out of Best Buy with an HD TV without paying ?

[Lafayette]

realpc: "But Krugman's tone sounds increasingly like socialist propaganda."

And yours looks like Ayn Rand revisited.

You seem to be saying that inconsiderate/indecent wealth accumulation is an acceptable inevitability just as long as the rest of us can simply get along with life.

Listen up: That is NOT a truism, but a figment of your imagination ... indoctrinated by a society whose values have idolized wealth and the accumulation of wealth.

Exaggerated income/wealth is indecent, whether it belongs to your favorite football star or to Bill Gates (who can't find enough ways to give it away, his is so humongous).

It is a market aberration, meaning that resources (capital) have been misallocated. Why? Because taxation allows it. Because the rules of engagement permit that outcome. And, the Lord knows how creative accounting can bend the rules.

Do you know any Robinson Crusoe alone on an island who became "rich"? Of course not. Being rich has a normative significance. It is relational to someone else or to others.

We are all parity-players in the market place, but the game is skewed such that some are rewarded with returns that are immensely disproportionate to their intrinsic value or effort.

Look it up in a dictionary: "social" means human beings that band together in a society that has a common set of rules. Otherwise, it is as you say, "the rule of the jungle prevails, survival of the fittest".

Darwin intended that notion for the animal kingdom, which does not know how to impose any other rule. But, we might suspect that he also knew that it pertained often to mankind, which still doesn't know how to apply rules.

Lucre rules.

[anne]

Actually, "survival of the fittest" was decidedly not Charles Darwin's term but Herbert Spenser's who invented "social Darwinism" which had nothing to do with Darwin's ideas. But, the complaint about the comical use of "socialism" is warranted.

[Lafayette]

"I took it out because one could easily argue that it is a necessity and spending more on it should not count towards making us better off."

Oh, but it does. You are assuming that health care is remedial and not preventive.

Obesity is a pandemic in the US. Teaching people how to eat is a necessity.

Spending money to do so can only improve health care. Of course, state spending at the secondary school level would have a substantial pay-off.

But between foreign wars against the terrorist menace and the danger to personal health, trade-offs have to be made, don’t they.

Are you aware of the cost of the trade-off to your personal safety in terms of health care?

Good.

[anne]

"I don't think you understand what I was doing by removing the health care expenses.... I took it out because one could easily argue that it is a necessity and spending more on it should not count towards making us better off."

What a truly comical idea. The idea that medical and dental care has nothing to do with making us better off because they are necessities. Food is a necessity, so why include food. Clothing is a necessity, so why include clothing. A home is a necessity, so why include a home. Utilities are a necessity, so why include utilities. Transportation are a necessity, so why include transportation....

[anne]

Sweetie, your teeth need straightening but straight teeth or any teeth at all will not make you better off.

Sweetie, you have asthma but taking allergy injections to cure the asthma will not make you better off.

The idea of using relative consumption levels to measure income and related wealth disparities is simply another radical conservative deception. Deceive on.

[anne]

"Now suppose the rich person spends 40,000 in 2005. The poor person spends 6,153 (40,000/6.5)....

"As I said, the table I looked at shows (as I estimate) that the rich spent 6.5 times as much on consumption as the poor. So if you know the consumption of the rich, you divide it by 6.5 to get the consumption of the poor."

Do the math and figure out how to survive on $6,153 a year....

[Cyril Morong]

To both piglet and john c. halasz:

You both raise some good points. I don't know how much consumption is debt financed (and how much it has been changing). I think what we would want to know is what is the real per capita debt for each quintile and how it has been changing (also real per capita wealth, assets minus debts). I don't think I know even where to look for those numbers.

Yes, how much the poor spend on health care may be different than what the rich spend. Again, the question is how much it has changed over time. I mentioned health care and removed it from the equation since I had some data on it and it is an obvious choice. Other things that people might be spending more on that don't necessarily improve our standard of living like lawyers should probably be accounted for. I just did not have that data handy.

Some things have come down in price, adjusted for inflation. Like microwave ovens. Something like that can make life better and easier. But again, I don't know where to get that data.

Unfortunately, I am old enough to also recall "back in the day." What I recall back around 1970 is that women wanted to get out of the house and go to work and become doctors and lawyers. I don't recall much discussion in the media that women were reluctantly going to work to make ends meet. Maybe that is what happened. But suppose women started working just because they wanted to. Labor supply shifts right, lowering wages for those already in the labor force (men's wages). That might have caused some women to enter the labor force since their husbands's salaries were either falling or not growing. But then more women might enter due to lower husband salaries. So I just don't know what caused the stagnation. But as those women entered the labor force and had more to spend, that could have helped raise incomes since an increase in the demand for goods can increase the demand for labor.

This link from EPI shows the real hourly wage for variouls percentiles from 1973-2005

http://www.frbsf.org/news/speeches/2006/1106aa.gif

Even the lowest percentile (the 10th) has a higher real hourly wage today than in 1973 (unfortunately it is not much higher, has fluctuated alot and has fallen recently although I bet in the last year, not yet in the table, it is up).

Also, my orignal consumption figures were not per household, but per person. So they can't be looked on as growing just because women entered the work force to keep the family consumption level stable.

[Cyril Morong]

anne:

I don't know why you are attacking me in a sarcastic way. It is not called for. Again, the 6,153 number is not an actual number. It came from dividing 40,000 by 6.5. I just used 20,000 for the rich in 1970 to have something to work with, then doubled it. It was just a convenience to estimate how much the consumption of the bottom 20% might have risen.

AS for health care, what I meant was that if it simply cost more to get the same health care, increased spending in that area does not make you better off. For example, suppose a doctor's visit cost 50 in 1970 but 100 in 2005. You spend twice as much but are not getting anything more. If you want me to leave in health care spending, then it strengthens my case that people are living much better lives by consuming more.

[anne]

"What I recall back around 1970 is that women wanted to get out of the house and go to work and become doctors and lawyers. I don't recall much discussion in the media that women were reluctantly going to work to make ends meet. Maybe that is what happened."

Good grief; should I laugh now?

[anne]

Paul Krugman:

"Most Americans are little, if any, better off than they were last year and definitely worse off than they were in 2000....

"Rising inequality isn't new. The gap between rich and poor started growing before Ronald Reagan took office, and it continued to widen through the Clinton years. But what is happening under Bush is something entirely unprecedented: For the first time in our history, so much growth is being siphoned off to a small, wealthy minority that most Americans are failing to gain ground even during a time of economic growth -- and they know it."

Paul Krugman is arguing that wealth and income inequality has been and is growing and that most Americans are worse off than in 2000, not that most Americans are worse off than in 1970.

[anne]

Quality differences in health care in 1970 and 2006 by the way have been of course vast, and the differences 35 years from now promise to be as vast.

[JamesG]

"Will the United States go down the path that Latin America followed?"

Shouldn't this perhaps read:

"Will the United States go down the path that it forced Latin America to follow; via CIA-backed coups, funding of terrorists and World Bank chicanery?"

[evagrius]

Cyril Morong;

I think you need to do a "bit" more research before arguing your point, ( especially regarding women and work ).

[tom]

a,

"I suppose you would say the money I pay to "Best Buy" is "Best Buy's" money. The fee I pay to "Best Buy" is the for the priveledge of owning a HD TV! How completely absurd!!!"

>Have you ever tried to walk out of Best Buy with an HD TV without paying ?<

Whose money are you paying with: your money or Best Buy's money? Whose money are you paying taxes with: your money that you earned and belongs to you or the governments money? If you say the later to either question then you can join Ethan in the nitwit club.

[piglet]

"Quality differences in health care in 1970 and 2006 by the way have been of course vast, and the differences 35 years from now promise to be as vast."

I'm not so sure about that. I think the gain in life expectancy has not been as great as popular belief has it, and how much of it is due to better health care is difficult to say. In any case, Cyril's point is that paying more for health care isn't necessarily a good thing, and that sounds reasonable.

says...

save_the_rustbelt: I know one person who has effectively been forced into (quasi) retirement by recurring carpal tunnel issues, exacerbated by burnout syndrome, making it utterly difficult to keep a well-paying job, even when making a genuine effort. But at some point layoff and high-pressure, low-gratification work environments were part of the picture.

[save_the_rustbelt]

The Chinese are beating SecTReas Paulson and his delegation like a cheap drum.

Not that Paulson will care much, he is counting the days until he goes back to Wall Street in early 2009 (if not sooner). Boosting the Chinese e3conomy has been very good for he and his peers.

Why does the U.S. negotiate from a position of weakness?

[evagrius]

"I'm not so sure about that. I think the gain in life expectancy has not been as great as popular belief has it, and how much of it is due to better health care is difficult to say."

One of the biggest idiocies around concerns life expectancy. It's the beginning stages of life and the health care received then and in early childhood that determine life expectancy, not when one's an old geezer going for the triple by-pass.

It's the social atmosphere, the social conditions, that affect early pre-natal, post-natal and early childhood care. That atmosphere controls the stress levels people have, ( especially pregnant women)- how they pay for shelter, food, clothing etc;.

This is where the U.S. has it all wrong but it's typical. More attention paid to the obviously concrete, ( the old geezer), rather than the invisible, ( the little ones in diapers).

[Stephen Heyer]

“Why are they so enamored of their wealth that they want to manipulate everything to keep it?” (evagrius Dec 13, 2006 3:48:33 PM)

This question is important, in fact central to current economic debate, so as no one else has addressed it I’ll post a summary of my research. Although I’ve only referenced Jared Diamond there is a lot of other research, much of it behavioral, to support the main points.

Kleptocratic elites form in every society where they are not ruthlessly and strictly suppressed. They then desperately compete for wealth and to seize as much of their society’s assets as possible (see Jared Diamond, “guns, germs and steel”).

This behavior is driven by powerful evolutionary roots: In historical terms, powerful, successful people have MUCH higher reproductive success, though, as much of that success consists of gaining sexual access to other men’s women, it is carefully unrecognized in polite circles.

However, careful reading of personal papers such as diaries from various periods soon shows just how pervasive this usually is. Neither has anything changed, as evidenced by revelations about the private lives of powerful figures of the Twentieth Century.

It should also be noted that this wealth effect is entirely relative, at least over a very low threshold, so kleptocratic elites will go on competing for more wealth and stealing more from the ordinary citizens no matter how much they have. The whole point is not to be wealthy, but rather to be more wealthy than your fellows.

It is this deadly, disruptive force that all societies have to somehow deal with. The more successful and persistent societies generally have the best structures for doing so.

This is why egalitarian societies seem to be pretty rare and of brief duration. They are also probably largely limited to societies expanding into new territory, or recovering from population crashes, so that there are plenty of reproductive opportunities to hand out to everyone and group solidarity is (temporally) more important than individual advantage.

Once the expansion ends competition resumes.

Oh! And of course this is also why the elites and their toadies in whatever is the local equivalent of the media and academic circles absolutely hate the idea of the ordinary citizens having weapons, even or perhaps especially, in those societies where it does little harm or even some good (see Jared Diamond, “guns, germs and steel”, p277). Likewise of course for any form of political or social organization outside official channels or control.

[evagrius]

Stephen Heyer;

So, if it isn't money it's sex and if it isn't sex it's money.

How boring.

You'd think after so many millenia of repeating the same behavior that societies and cultures would respond differently.

Of course, there were attempts. Read Karen Armstrong's The Great Transformation for an interesting response to your argument.

P.S. Somehow, I can't see Bush or Bill Gates as being sexually attractive to women- but then....

[Stephen Heyer]

"You'd think after so many millenia of repeating the same behavior that societies and cultures would respond differently" (evagrius | Dec 14, 2006 4:27:32 PM).

Sadly, they don't.

As for Bush and Bill Gates, well... they kind of prove the point: Great wealth and/or power seem about their best bet for passing their genes on at all.

And thanks for the Karen Armstrong reference, I'll read it as soon as I can.

[Cloudy]

Agree with Krugman, but he left out one important point - the role played by overwhelming immigration, both legal and illegal. There's no doubt that the flood of immigrants has been deliberately manipulated to keep American labor costs down. Just look at the legislation Microsoft tried to sneak thru last week.

[DJM]

Thank you Piglet ! "......we would need detailed data about what they are able to spend money on. ..... taking consumption as the benchmark is fundamentally dubious. ...how much of that increasing consumption is credit financed ? " posted Dec 13, 2006 11:07:53 PM
Those were a couple of the most basic points I thought were missing until your post. All the talk of comparing consumption as a way to judge how well we are doing made me think of something else I just read;
The Cash Cows of Personal Debt: The Credit Card Industry and Predatory Capitalism
by Charles Sullivan | Dec 14 2006 - 9:45am
"The booming credit card business is one of the most profitable and destructive industries to ever emerge from the inventive capitalist mind. Citibank is raking in more money than Microsoft and Wal-Mart............."

I particularly appreciate the phrase "Predatory Capitalism" because I too believe that is what our system has become.

[DJM]

Oh that can be found here; http://www.smirkingchimp.com/author/charles_sullivan

[DJM]

Back again with one more thought on the effect of all the credit consumerism and how I believe it translates to an even larger gap between the "haves" and the "have so little to spare"......when one is wealthy enough already, paying for the necessities of life (even the unexpected ones like illness or the car breaking down, whatever) rarely means having to borrow for any length of time. Whereas someone always at the limit of their purchasing power may have to use their line of credit to pay an unexpected bill ( and I am still talking necessities here, not luxuries) or even just increasingly higher and higher costs for the basics. Once that happens everything you have had to use credit for now costs much more of course. Eventually as prices continue to go up, and/ or other emergencies keep you from paying off the credit card completely, that becomes more of an anchor than a life vest.

[mrrunangun]

I may be too late for this thread, but in absolute terms, today's lower middle class is miles ahead of where it was in the 60s and 70s. The rising tide has lifted their boat, just not as much as it has the Bushes and Gateses and their ilk. Policemen and tradesmen have far better lives in material terms than their forebears.
Sweden is held up as a model of social equality, but that has come at a cost. In terms of material wealth, the american 50th percentile is as wealthy as the 90th percentile there. The high taxes are a drag on the work ethic of the remaining working population.

[Real Person from the Real World]

I used to love to read Paul K.. Just about everything he has ever said, hits the nail straight on! But now, apparently only the wealthy can read about economics and how the poor masses can't afford to live.... I can't afford it. I make $11.hr (and it took 3 years to get to that!)working in HI TECH for an immigrant. I have to sneak a read here. I always thought an educated society lived on ideas, but now you have to pay for them, as with everything. I eventually expect we will be taxed on the air we breathe, after all, we pay for our water. Anyway, my employer hired me and we started doing outsourcing, and he targetted me as his white front, to do sales. (I never got the chance to get the experience to use my tech education, since companies demand some who can "hit the ground running." - we do not vet our grads through companies like the forign governments do). But I am just a flunky, and business is risky, so I get paid as little as possible. He would prefer I worked on commission, but I refused (luckily, or I would have starved). I got him into places, but something had changed, and the wheelbarrow he was hoping to cart to the bank never filled, so we went to staffing. The other immigrants who are vetted thru their foreign governments come over and work as virtual slaves, since some guy with a lot of hot hi-tech know how may only get $35/hr while the various middle-men are paid pieces of the $90/hr by the actual US employer. But the companies know that, and beyond the situations were you have some know-next-to-nothing HR person sending out requirements looking for a purple monkey, US Companies are clamping down on what they are willing to pay (salary inflation), and the bottom level guys who hold their little slaves' visas are holding ground, so the middle layers are squeezed BIG time. So, next, we started into head hunting. My employer is patient, and having been a little slave at one time himself, and learned tech and the ropes, has gotten pretty good at picking up on the corporate needs of big companies. We have one really big major financial company as a client. For some jobs you might want a Green Card (Outsourcing Vendor Mgmt is a biggie) so now you have the previously little slave immigrants with the magic GREEN CARD getting greedy, and demanding fancy salaries and benefits, which someone like me, can only dream of. Some have asked me to negotiate for more money by telling the employer they do not want health insurance! (I get NO benefits, but these people getting big salrary sometimes get eye-poping benefits!). But to top this, you have a tiny minority of US born people who are real winners negotiating for a couple thou over 6 figures because they claim someone else gets 6 figures, or I have to argue that they're worth it and will save the company (theorhetical at this point) money. Frankly, I feel SCREWED. KRUGMAN, RIGHT ON!

[anne]

Real person from the real world, you are a real fraud.

[Real Person from the Real World]

On what do you base your "Fraud" comment? Also, my paycheck was only recently w2 because 1099 is cheaper. have you ever tried to live on$11/hr? Not a luxurious life, especially with NO HEALTH insurance and a serious health problem. You think I am a fraud? I'll trade places with you and you see what my life is like.

[Real Person from the Real World]

I work pretty darn hard for that $11/hr too. Recently I am listening to and negotiating for a candidate who whines that the $110k base + $3k sign on bonus + benefits being offered are not enough, because the drive is "too long" to maintain this person's "quality of life," and also that since they read that the chairman of the company got an $40 million bonus, they should pay a salary of "at least" $120k for the position. If I was on commission, I suppose I might make a good hit, but it's been several months since we placed anyone. (Entrepreneurship is great when you don't worry about regular income I guess, but I need regular income for regular bills, and my employer won't pay more than $11/hr) I know a lot of programmers that put down on job sites large incomes, but it can be a long time between those gigs for them. Steady jobs at good incomes with benefits are few and far between. I feel like the poor ghetto kid at the department store window at Xmas. FRAUD? *explicative* to you "anne"!

[anne]

Nonsense; a person with a college degree working in the information technology field for $11 an hour with no benefits for $22,800 a year bringing in employees at $110,000 with a bonus and benefits. Simply get a public school teaching credential and teach in a private school while your finishing and you will do a lot better from the beginning and not have to wait 3 years or any years to be where you supposedly are now with benefits. Nonsense.

[Real Person from the Real World]

Ain't that easy to get into teaching. There is a lot you do not know, and people vary. You are a know-it-all without knowing anything about me.

[anne]

Then I do not understand at all, but I wish you well though I do not understand.

[Real Person from the Real World]

Fundamentally, my facts stand. There are a lot of small and micro-size staffing firms out there, catering to the "sale" of foreign programmers. Everyone in the business knows about layers, and the squeeze between the people that hold the programmers' visas and the ridiculously low rates that some companies cite on their contracts to contain costs, are a fact of life. You know nothing about IT staffing. Consider: If you are only making $5 an hour on some guy on visa, you cannot pay big wages to your employees, let alone benefits, and that is where the mid layers like my employer stand. We lucked into doing work for a large corporation. But these are hires, and the fees are one time, while overhead for the business can be high. For example, we have a group offshore doing sourcing, and they have to be paid whether someone is placed or not, and whether we get a decent return or not. Everyone loses with layers, so where do you go? Headhunting can pay, if you are a lone person with connections doing the sourcing, not a businessman trying to build a company and with other expenses (you know nothing of, and I will not explain here). Do not assume you know it all. I did look into teaching about 10 years ago, and it did not work out. BTW, I have an MBA as well, and almost got a masters in teaching too. I now pay off the dam student loan on top of other expenses. Problem is that the schools are paid by tax payers who vote teacher rate increases down, so schools want someone cheap and young out of undergrad school, not older people looking for a job and have health problems and a masters that costs them more but provides a liveable salary for someone that needs more income than a 20 year old. Teacher Education Incorporated has now discovered the bust. The school I went to laid off most of its faculty, when the big boom did not materialize... who were wandering the halls of a local college looking shell shocked, when I was going for a programming degree after dropping out of the place. There are some teaching jobs, if you are willing to drive ultra long distances and work in dangerous places or teach science or math. Oh, and when the tech bust came in 2001-3 the unemployed techies were all competing for the teaching temp jobs. Most local schools are overloaded with "teachers aides" all with their teaching certs. Also, I know a lot of teachers, and most are unhappy and get out as soon as they can. Also, teaching is not the dumping ground for losers or the salvation of the unemployed. Lady, you do NOT know it all.

[anne]

Again, I wish you well and I am sorry to have doubted your story but I still do not understand. I know a lot of happy teachers and a Masters degree in education is precisely what public schools I know of want and require and health status should make no difference in public school employment. Enough of my excuses, I do wish you well though I do not properly understand.

[anne]

Also, I am obviously completely wrong about your field and expertise in technology staffing but by explaining further I begin to understand that aspect of the story. Thank you for your patience; I did not understand.

[anne]

Health insurance is essential for everyone, let alone for everyone working, and should be considered a basic right here as elsewhere. The reason teaching immediately came to mind is not as a dumping ground for that would never occur to me but that it makes sense for a college graduate who works in personnel let alone who has a technical degree. But, you were right and I did not and do not know it all.

[Real Person from the Real World]

Comment: About Master's degrees being desireable for teachers -- it all depends on where you teach. If I lived in the community where the parents are all making 6 figures, the school might possibly want that. Actually, I live near a wealthy area like that, and amazingly grade school reachers in one of the few schools were going for Ph.D's when I stopped by ..... but try to get into the school for a job! even the temp jobs were few and VERY poorly paid. One lady at the particular school told me that some of the wives did temp work when it came up, for "you know, pin money." It is always comforting, for someone to say to someone hungry for a decent paying job, 'Oh, I know you'll find something! you're so smart!" Humbug. Like sweeping the dust out of the way under the rug. Frankly, from my experience the schools are a mess. There is too much interest in teachers who 'follow their bliss' to teach children, and too few who actually know any subject in-depth. I ran into people in the teaching programs who had no idea who, for example, James Cook was, or that Dante Gabrielle Rosetti was a poet as well as a painter, or that he had a sister who wrote poetry. They only know the minimum from their specific (expensive) classes and textbooks, and that is it. The schools promote a system where the teachers are supposed to keep going for courses, for career advancement, resulting in an awful lot of *courses* that were a couple days worth of crap that was qualified for the specific purpose, like touring a waste recycling plant. The kids maynot be able to do long division, but they all know about recycling waste paper. Unfortunately, some of the teachers I run across are some of the most uneducated people I have ever met, and yet they will ridicule someone else who has read as only knowing, 'facts.' The profession is overly focused on arguing about the latest educational fad, like "whole language," and filling the day with useless learning experiences (one school I was at created a sundial - as an adult I found it interesting as I have several alternative time pieces, but talking to the kids, 99% couldn't have cared less, let alone got anything out of it). The concept is not that difficult, and might be easier taught then wasting time demonstrating, not that we use sundials much anymore. Frankly, one of the BIGGEST problems in this country, is turning schools into profit centers! They liberally had out grants and scholarships to foreign students, while the rest of us take out a loan we pay for years. Some things should not be businesses and geared toward profit. Education and medical are two cases in point.