Destroying the lair of the budget-balancing cretins

from Dean Baker

By now almost everyone knows of the famous Excel spreadsheet error by Harvard professors Carmen Reinhart and Ken Rogoff. It turns out that the main conclusions from their paper warning of the risks of high public sector debt were driven by miscalculations.

When the data are entered correctly, this hugely influential paper can no longer be used to argue that the United States or other wealthy countries need fear a large growth penalty by running deficits now. There is no obvious reason that governments can’t increase spending on infrastructure, research, education and other services that will both directly improve people’s lives and foster future growth.

With the advocates of austerity on the run this is a great time to pursue the attack. The public should understand that the often expressed concerns about long-term growth, the future, and the well-being of our children are simple fig-leafs for inhumane policies that deny people (a.k.a. the parents of our children) work and redistribute income upward.

Robert Samuelson finds economics is way too complicated (2 graphs)

from Dean Baker

That is quite literally what he told us in his column. His second paragraph tells readers:

“Among economists, there is no consensus on policies. Is “austerity” (government spending cuts and tax increases) self-defeating or the unavoidable response to high budget deficits and debt? Can central banks such as the Federal Reserve or the European Central Bank engineer recovery by holding short-term interest rates near zero and by buying massive amounts of bonds (so-called “quantitative easing”)? Or will these policies foster financial speculation, instability and inflation? The public is confused, because economists are divided.”

See, we don’t know what to do, so we just can’t do anything. All those suckers who are unemployed or seeing stagnant wages, well we just don’t know. And the fact that those on the top are getting rich with 60-year high shares of national income, well what can we do about that? It’s just too confusing.

Score card: 16% vs. 288%

From Edward Fullbrook 

David Ruccio‘s post yesterday on the 34-year (and still continuing) period of radical income redistribution in the United States featured a graph from a new report from the Economic Policy Institute. Below, from the same EPI report, is a table no less shocking than yesterday’s graph. 

Up, up, and away (the 1% and .1% in the USA)

from David Ruccio

Just as we expected: the incomes of those at the very top have rebounded in dramatic fashion.

According to calculations by the Economic Policy Institute (pdf), 

Inequality, the Second Great Depression, and mainstream economics

from David Ruccio

This morning, we’re faced with the extraordinary spectacle of two left-of-center, Nobel Prize-winning economists stumbling all over themselves trying to make sense of the role of inequality in creating and sustaining the Second Great Depression.

Really?! Now, they may have missed the trend of growing inequality over the course of the past three decades. Still, with all the talk of obscene levels of inequality in the last five years and mainstream economists, even the best and the brightest, are still having a hard time formulating a theory about the impact of that inequality in producing the conditions for the crash of 2007-08 and sustaining the recovery that never was.

First, Joseph Stiglitz argued that “Inequality stifles, restrains and holds back our growth.” Then, Paul Krugman responded by telling us he’s not convinced “that this particular morality tale is right.” 

Job polarization in the 2000s? (two graphs)

from John Schmitt

In a recent post at Wonkblog, Dylan Matthews takes a fairly dim view of a new paper that Larry Mishel, Heidi Shierholz, and I have written on the role of technology in wage inequality. Matthews raises several issues, but I want to focus right now on a key point that he missed: proponents of the “job polarization” view of technological change provide no evidence that the framework actually works in the 2000s.

In his piece, Matthews focused on our criticisms of the ability of the job polarization approach to explain wage developments in the 1990s. I’ll leave the discussion of the 1990s for another day, but the more important issue for contemporary policy discussions is whether the framework is helpful at all for the last decade.

Since the occupation-based “tasks framework” that lies behind the academic research on job polarization is widely considered in the economics profession to be the best available technology-based explanation for wage inequality, Larry, Heidi, and I take the lack of evidence for this framework in the 2000s as support for our view that other policy-related factors are what is really driving inequality. We also think that if this purportedly unified framework doesn’t work well for the 2000s, that it is likely not helpful for earlier periods either.

But, even if you still think technology is the main or even an important culprit, we would argue that you need a new theory of technology that actually fits the facts of the 2000s.

This is a fairly long post and starts with some necessary background –necessary because there is a sizeable gap between the way economists talk formally about “job polarization” and the way most of the public talks about the same issue.  

Chart of the day: real wages and labour productivity in developed economies 1999-2011

from David Ruccio

According to a new report from the International Labor Organization, Global Wage Report 2012/13: Wages and Equitable Growth,

Between 1999 and 2011 average labour productivity in developed economies increased more than twice as much as average wages (see figure 11). In the United States, real hourly labour productivity in the non-farm business sector increased by about 85 per cent since 1980, while real hourly compensation increased by only around 35 per cent. In Germany, labour productivity surged by almost a quarter over  

Percentage distribution of U.S. aggregate household income, by income tier, 1970-2010 (Graph)

from David Ruccio

In the below chart, the middle tier is defined as those living in households with an annual income that is 67 percent to 200 percent of the national median; the upper tier is made up of those in households above the 200 percent threshold, and the lower tier is made up of those below the 67 percent threshold.

What the Pew Research Center analysis finds is that upper-income households accounted for 46 percent of U.S. aggregate household income in 2010, compared with 29 percent in 1970. Middle-income households claimed 45 percent of aggregate income in 2010, compared with 62 percent in 1970. Lower-income households had 9 percent of aggregate income in 2010 and 10 percent in 1970. 

“The average income of the bottom 90 percent fell 13.5 percent.”

from David Ruccio

David Leonhardt, in an otherwise interesting post on slow economic growth and increasing inequality in the United States, “which has concentrated the economy’s modest gains among a small share of the population,” actually underestimates the increase in inequality over the course of the past three decades. 

Spain’s government and European authorities bent on dismantling welfare state

from Mark Weisbrot

MADRID — I have argued for some time now that the recurring crisis in the eurozone is not driven by financial markets’ demands for austerity in a time of recession – as is commonly asserted. Rather, the primary cause of the crisis and its prolongation is the political agenda of the European authorities – led by the European Central Bank and European Commission. These authorities — which if we included the IMF constitute the so-called “Troika” that runs economic policy in the eurozone — want to force political changes, and particularly in the weaker economies, that people in these countries would never vote for.

This is becoming more obvious here in Spain, where the government – run by the right-wing Popular Party (PP) – shares the political agenda of the European authorities, perhaps even more than the IMF does. 

Mind the Gap

from David Ruccio

Top .01%, Top 1%, Bottom 99%

from David Ruccio (and the New York Times) 

President Obama’s budget is disappointing

from Mark Weisbrot

President Obama’s proposed budget has a few interesting proposals for reforms over the next decade.  Among the best are the proposals to rescind the Bush tax cuts for households with incomes of more than $250,000 and to tax dividends for stockholders among this group as ordinary income.  These and a few other proposals would sum up to a small but significant step in the opposite direction from where this country has been going for the past three decades:  i.e. a vast upward redistribution of income to the rich and the super-rich.

But those concerned with the immediate future are likely to be disappointed.  Most Americans have to work for a living, but there are more than 25 million, or 15 percent of the labor force that are either unemployed, have given up looking for work, or are involuntarily working part time.  The main reason for that is quite simple: There is not enough demand for goods and services in the economy in order to employ them. 

Chart of the day: US profit and wage shares 1970 – 2011

This graph shows that:

1. since the early 1980s the underlying trend in the United States has been for a bigger share of national income going to corporate profits and less to employees, and
2. now under Obama the rate of redistribution has reached an unprecedented level.   

Mis and mins (graph)

from David Ruccio

I have no particular objection to highlighting “the vast shift in national income toward our richest 1 percent,” even if it means focusing, for the umpteenth time, on the fate of the “middle-class” instead of on workers and the working-class.

That’s what Ian Ayres does, in utilizing the Brandeis Ratio to measure the growing gap between the average income of the richest 1 percent and median household income.

US corporate profits after tax, as a percentage of GDP

from David Ruccio

source

A tale of 30 corporations

from David Ruccio

When we look back on this period, someone will have to write a novel that begins with the following sentence: it was the best of times (for corporations), it was the worst of times (for the 99 percent).

And, of course, the best and worst of times are connected.

According to a recent report by Public Campaign [pdf, ht: sm], 30 multi-million-dollar American corporations spent more money lobbying Congress than they paid in federal income taxes between 2008 and 2010, ultimately shelling out approximately $400,000 every day—including weekends—during that three-year period to lobby lawmakers. And, in both 2008 and 2010, they paid even more than that to their top 5 executives. 

This time, Krugman is right. Lowering nominal wages is really, really hard (charts).

from Merijn Knibbe

According to Paul Krugman, in a recent blogpost,

It is really, really hard to cut nominal wages, which is why reliance on “internal devaluation” is a recipe for stagnation and disaster.The crisis really has settled some major issues in economics. Unfortunately, too many people — including many economists — won’t accept the answers

The title of Krugman’s post is ‘Lessons from Europe’. That’s wrong.

The one percent turns class war into generational war

from Dean Baker

Major news outlets like the Washington Post and National Public Radio constantly bombard us with news pieces on the budget deficit. Invariably these stories focus on the cost of “entitlements,” which most of us know as Medicare, Medicaid and Social Security. The story pounded home in these pieces – often explicitly – is that these programs, that primarily benefit the elderly, are creating the basis for a generational war between the young and the old.

The upward redistribution of income in the United States 1979 to 2007

from David Ruccio

If it wasn’t clear before it should be now: the distribution of income in the United States has become increasingly unequal over the course of the past three decades.

It is increasingly unequal based on “market incomes,” and it is only slightly less increasingly unequal after taking consideration transfers and taxes. The result in both cases is that the distribution of income in the United States has become grotesquely unequal.