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Friday, April 27, 2007

Paul Krugman: Gilded Once More

Paul Krugman looks at the return of the Gilded Age:

Gilded Once More, by Paul Krugman, Commentary, NY Times: One of the distinctive features of the modern American right has been nostalgia for the late 19th century, with its minimal taxation, absence of regulation and reliance on faith-based charity rather than government social programs. Conservatives from Milton Friedman to Grover Norquist have portrayed the Gilded Age as a golden age, dismissing talk of the era’s injustice and cruelty as a left-wing myth.

Well, in at least one respect, everything old is new again. Income inequality — which began rising at the same time that modern conservatism began gaining political power — is now fully back to Gilded Age levels.

Consider a head-to-head comparison. We know what John D. Rockefeller, the richest man in Gilded Age America, made in 1894, because ... he had to pay income taxes. ... His return declared an income of $1.25 million, almost 7,000 times the average per capita income ... at the time.

But that makes him a mere piker by modern standards. Last year, ... James Simons, a hedge fund manager, took home $1.7 billion, more than 38,000 times the average income..., and the top 25 combined made $14 billion. ...

The hedge fund billionaires are simply extreme examples of a much bigger phenomenon: every available measure of income concentration shows ... levels of inequality not seen since the 1920s. The new Gilded Age doesn’t feel quite as harsh and unjust as the old Gilded Age — not yet, anyway. But that’s because the effects of inequality are still moderated by progressive income taxes, which fall more heavily on the rich...; by estate taxation, which limits the inheritance of great wealth; and by social insurance programs like Social Security, Medicare and Medicaid, which provide a safety net for the less fortunate.

You might have thought that in the face of growing inequality, there would have been a move to reinforce these moderating institutions — to raise taxes on the rich and use the money to strengthen the safety net. ...

But... Taxation has become much less progressive: ... average tax rates on the richest 0.01 percent ... have been cut in half since 1970, while taxes on the middle class have risen. In particular, the unearned income of the wealthy — dividends and capital gains — is now taxed at a lower rate than the earned income of most middle-class families. ...

Meanwhile, the tax-cut bill Congress passed in 2001 set in motion a complete phaseout of the estate tax. If the Bush administration hadn’t been too clever by half, hiding the true cost of its tax cuts by making the whole package expire at the end of 2010, we’d be well on our way toward becoming a dynastic society.

And as for the social insurance programs..., the Bush administration tried to privatize Social Security. If it had succeeded, Medicare would have been next.

Of course, the administration’s attempt to undo Social Security was a notable failure. The public, it seems, isn’t eager to return to the days before the New Deal. And the G.O.P.’s defeat in the midterm election has put on hold other plans to restore the good old days.

But it’s much too soon to declare the march toward a new Gilded Age over. If history is any guide, one of these days we’ll see the emergence of a new Progressive Era, maybe even a new New Deal. But it may be a long wait.

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Previous (4/23) column: Paul Krugman: A Hostage Situation
Next (4/30) column: Paul Krugman: Another Economic Disconnect

    Posted by on Friday, April 27, 2007 at 12:15 AM in Economics, Income Distribution, Politics | Permalink  TrackBack (0)  Comments (50)

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