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Jul 30, 2013


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Dana Ames

Michael, have you seen this?

We may not want to go to a Scandinavian model, but if the above video is factual, it won't be long until there is some kind of uprising in this country. What it presents is simply untenable. I think I read somewhere recently that this picture is worse than things were just before the crash of '29.

I also wonder if you have read this:

I haven't read the book, but I heard an hour-long interview with the author over the weekend. I'd be very interested in your opinion. Maybe economically there actually was a "good old days"...

We clearly cannot keep going the way we are. "Market capitalism" is not the bogeyman a lot of people "on the left" make it out to be, I'll agree with you on that. And we do not need to force wealth redistribution; that's not the answer, either. But we do need regulations in place to keep the playing field fair, and these have been dismantled alarmingly over the past 40 years. Makes me want to go to DC and have a few words with our legislators the way the Lord had a few words with the moneychangers in the Temple...


Michael W. Kruse

I haven't read Smith's book but it looks interesting. As for the video, to be blunt, it is propagandist trash. It is highly selective it what it presents, uses wealth and income as synonymous terms, and makes significant erroneous leaps of logic. When it first came out, I wrote a 2,500 word post in reply but (and wasn't finished) but found the trying to untangle this video so problematic I doubted anyone would read it.

I agree that serious reform is needed in the banking industry. Investment banking needs to be a separate enterprise as it once was.

However, note that the rise in inequality over the last forty years is not a uniquely American problem. Most other advanced economies are experiencing the same thing. That suggests something broader is afoot that American public policy, although that may be a contributing factor. Two other things coincide with this: Computer technology and woman in the workforce.

Computer technology increases productivity, driving down production costs, making many goods more affordable. But it also has the impact of eliminating many low-skilled jobs. It is disruptive to the match of labor demand and labor skills. My read is that in the early part of technological revolutions, owners of capital disproportionately benefit. But as the technology becomes more pervasive, new jobs emerge and employers become hard pressed to fill them. As laborers become skilled at new jobs, wages rise and the balance begins to tilt the other way.

Having women in the workforce now means many two earner households. The middle class is not sinking into poverty. Many are rising into the upper class. See my post "The Middle Class is Disappearing ... into the Upper Class."


Divide households into three income groups:

High - +$75,000
Middle - $25,000-$75000
Low - -$25,000

Between 1967 and 2009, the percentage of households living in these groups (using inflation adjusted real dollars) is as follows:

High: 16.3 to 39.1
Middle: 61.8 to 43.2
Low: 22.0 to 17.8

Note that the percentage of low-income households declined! So did the percentage of middle-income households. The percentage of high-income households went up! The middle class people did not sink into poverty. They rose to high income.

I don’t have the data to back it up but I suspect what we are seeing is single earner households concentrating in the lower part of the middle group and two-earner households concentrating near the top of the middle group and above it.

Bottom line: Inequality is an incredibly slippery term and I find it difficult to grasp all the dynamics of what it is happening or to know how much weight to give to which variables. But as I noted, this is not a particularly American problem and that points me toward more globalized systemic factors (like technology and changes in family roles in advanced economies) as the driving factors.

Dana Ames

All your reasons are, well, reasonable. I'd still like to know what you think of the book, if you read it. Since our economy is leading the world, it seems we should promote policies that attempt to open real opportunities for people - and then crack down on those in our own country who flout the laws. Our hypocrisy in this and other things is rendering the rest of the world deaf to whatever good we say we stand for.


Michael W. Kruse

I agree. The driving issues for me are A) is there a sufficient safety net and B) how do we improve economic mobility. Another issue is the poor regulation and concern that the system is being rigged in ways that make life more precarious for society and to the benefit of a few very wealthy people.

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