Math Is Required

There’s a very good post from Derek Thompson at Atlantic which explains why the recovery looks so good to some people, e.g. President Obama, but not so good to a lot of people. And it has nothing to do with racism or ideology but with the structure of the American economy today:

The U.S. economy’s power-law features, in which averages disguise massive inequalities in outcomes, go a long way in explaining how Obama can tell a story about the economy vastly different from the ones that are propelling some presidential candidates. A prime example is the pattern of income growth. Between 2009 and 2013, most measures of real personal income showed slow but steady improvement. Average hourly earnings for private sector workers grew about 7 percent. But what about the distribution? The top 1 percent saw its disposable income grow by 11 percent. Everybody else got close to nothing. For the bottom 99 percent, income actually declined through the first five years of the recovery. “So far all of the gains of the recovery have gone to the top 1 percent,” the economist Justin Wolfers wrote.

which if you will recall is what I’ve been saying for some time.

Left unaddressed is what to do about it. We could produce a lot more growth. Enough so that it would trickle down to a higher proportion of the people. Unfortunately, nobody knows how to do that. Everybody has an idea and many of the ideas are mutually exclusive.

We could raise taxes on the beneficiaries of the growth of the last few years and transfer the proceeds to those who haven’t benefited. That has two problems. First, getting the taxed to sit still long enough to pay is harder than it sounds. And second when the proposals get filtered through the Congress somehow rather than going to people in the bottom 90% of the economy the transfers always end up going to people in the top income percentiles. On behalf of the bottom 90%, natch.

My proposal—stop subsidizing the rich—never seems to get any traction. To do that you’ll need to let banks fail, make the ownership of assets (as opposed to work or the production of goods) less profitable, and kill a sacred cow or two, e.g. the home mortgage interest deduction, an astonishing proportion of the benefits of which go to the highest income earners. Funny, that.

4 comments… add one
  • michael reynolds

    I’ll tell you why it doesn’t get traction. No one knows what the hell it means. It doesn’t connect intellectually, and it doesn’t connect emotionally. Ideas don’t always have to do both, but they have to do one to build a constituency. “Make America Great Again” doesn’t connect intellectually, but it does emotionally. “I’m What You Got, Vote Hillary,” connects intellectually, but not emotionally. (Possibly not her actual slogan.)

    But “Stop subsidizing the rich,” despite being quite probably a great idea, ticks no boxes. It sounds like something involving spreadsheets. No one gets behind spreadsheets, they get behind torches and guys carrying rope. What you want is, “Down with the rich.” No one knows quite what that means, either, but it gives you the feels. (As my readers say.)

    These are interesting times, eh?

  • Guarneri

    “Everybody has an idea and many of the ideas are mutually exclusive.”

    I’m wondering if “get the hell out of the way” is on the list of ideas. Most “ideas” involve government initiatives, but never advocate government stepping aside. Politicians and their staff ginning up “ideas” is how you end up with Chief Resiliency Officers.

  • I’m wondering if “get the hell out of the way” is on the list of ideas.

    I don’t see many opportunities for rent-seeking in that so, no, it probably isn’t.

  • steve

    “I’m wondering if “get the hell out of the way” is on the list of ideas.”
    We already tried that with the banking sector. Certainly wouldn’t try that with them again. OK for small business, but I still think state laws amy be at least as big a problem as federal.

    Steve

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