Saturday, March 31, 2012

Meyerson on inequality

Harold Meyerson bangs the inequality drums:
Occupy Wall Street is not known for the precision of its economic analysis, but new research on income distribution in the United States shows that the group’s sloganeering provides a stunningly accurate picture of the economy. In 2010, according to a study published this month by University of California economist Emmanuel Saez, 93 percent of income growth went to the wealthiest 1 percent of American households, while everyone else divvied up the 7 percent that was left over. Put another way: The most fundamental characteristic of the U.S. economy today is the divide between the 1 percent and the 99 percent. 
It was not ever thus. In the recovery that followed the downturn of the early 1990s, the wealthiest 1 percent captured 45 percent of the nation’s income growth. In the recovery that followed the dot-com bust 10 years ago, Saez noted, 65 percent of the income growth went to the top 1 percent. This time around, it’s reached 93 percent — a level so high it shakes the foundations of the entire American project.
So the rich are taking a bigger slice of the pie while the rest make do with a smaller piece. Left unsaid is the size of the pie -- is it bigger, smaller, the same? Are the 99 percent worse off than 20 years ago during the early 1990s? Let's check out the study that Meyerson links to:
...Average real incomes of the  bottom 99% grew only by 6.4% from 1993 to 2010 (implying an annual growth rate of .37%)...While the bottom 99 percent of incomes grew at a solid pace of 20.3% from 1993 to 2000, these incomes grew only 6.8% percent from 2002 to 2007...bottom 99 percent incomes fell by 11.6% from 2007 to 2009 while they fell only by 6.5 percent from 2000 to 2002.
In other words, the incomes of the bottom 99 percent rose when the economy expanded and fell when it contracted. Even after experiencing a sharp fall during the most recent recession, the 99 percent are still better off than 20 years ago in real terms (by 6.4 percent). As the economy improves, real incomes should once again begin to rise. It's a dynamic which illustrates that the economy is not a zero sum game and that one person's gain is not another person's loss; the poor do not have to get poorer in order for the rich to get richer. This reality, however, is probably of little interest to an obvious class warrior such as Meyerson. Moving along:
While never putting a premium on economic equality, America has always prided itself on being the preeminent land of economic opportunity. If all of this nation’s wealth is captured by a narrow stratum of the very rich, however, that claim is relegated to history’s dustbin. Research by Julia Isaacs of the Brookings Institution, as part of the Economic Mobility Project, has shown that intergenerational mobility in the United States has fallen far below the levels in Germany, Finland, Denmark and other more social democratic nations of Northern Europe. Now, Saez’s analysis of income data provides further evidence that mocks America’s self-image as a land where hard work yields rewards.
All nonsense. If the United States was no longer the land of opportunity then millions of people wouldn't aspire to move here. That hard work is no longer rewarded is an assertion unsupported by Saez's data while the irrelevance of income mobility has already been discussed here.

After failing to prove much of anything, Meyerson then delves into the alleged threat that inequality poses to our democratic system:
The consequences of this concentration of wealth and income extend beyond the purely economic. A middle class enduring prolonged stagnation isn’t likely to fund projects the nation needs to undertake — such as rebuilding our infrastructure or increasing teacher pay — or, ultimately, to retain its faith in the efficacy of democracy. The rise of super PACs, the low rates of taxation on capital gains and hedge fund operators, the ability of the major banks to fend off reform — all testify to the power of a neo-plutocracy beyond democratic control.
Even if we accept for the sake of argument Meyerson's premise that the middle class is stagnating, what is to stop them from voting for greater infrastructure spending or teacher pay and then sending the bill to the 1 percent in the form of higher taxes? After all, the 99 percent have the 1 percent outvoted by a factor of 99 to 1. Of course, the very premise of the question is absurd, as combined government spending in the US is currently estimated at $6.3 trillion -- roughly $20,500 per US citizen -- which would seem sufficient to both provide for adequate transportation and teacher pay.  If insufficient, it speaks to either inefficiency on a gargantuan scale or a government run amok that has been assigned far too many responsibilities. Or perhaps some of both. 

The last sentence, meanwhile, is completely absurd. If we truly have a "neo-plutocracy beyond all democratic control" then why does the US have a corporate income tax that, as of tomorrow, will be the highest in the developed world? Why don't the rich reduce the top income tax rate to a far lower one, or just abolish it entirely? Why was Dodd-Frank passed? Why has federal regulation of the credit card industry increased? What on earth is Meyerson talking about?

One more time: why do those who insist that inequality is one of the most pressing problems facing society today struggle so mightily to make their case?

Update: Looks like Alan Reynolds already skewered Meyerson for this column, noting his usage of some rather deceptive data regarding income growth of the 99 percent. 

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