Paul Krugman is on again today about the disappearing middle class, and how the Bush tax cuts are and always have been a huge, unfair giveaway to “the rich,” whoever they are. Because I happen to remember that the Bush tax cuts actually were an across-the-board cut in marginal rates, together with strong reductions in taxes on capital, I wondered how Krugman gets from there to considering them unfair.
Well, of course it’s because high-income people pay more taxes than lower-income people. A LOT more taxes. So any change in marginal rates necessarily affects them more, whether you raise rates or cut them. Clearly enough, Krugman doesn’t have a problem with low tax rates. He has a problem with the fact that some people earn a lot of money.
That got me wondering why we have so much income inequality in the first place. I don’t think there’s one simple answer to that question, but a lot of it comes down to the amount of risk you take.
First, let’s quickly acknowledge a few important things. It’s true that a lack of good education means that millions of unfortunate people have little of worth to trade in return for a good living. That accounts for a lot of inequality at the low end of the scale.
It’s also true that much if not most of the financial industry has shifted from making capital available for investment, to a range of rent-seeking behaviors which are made possible by wrong-headed government regulation. Wall Street and the banking industry are ripping the rest of us off. This accounts for a lot of inequality at the high end.
But what’s happening in the middle? Think about what it means to be middle-class, a category that in much literature represents the ideal of a good, gentle life, conducive to moderation, societal health, and the raising of good children.
In practice, to be middle class means you have a job that gives you little risk and pressure, while also paying you enough money to escape material need. Unlike a small businessman, you don’t ever have to worry if today is the day you lose your biggest customer. Unlike an unemployed unskilled laborer, you don’t have to worry where your next meal is coming from. At worst, you adjust to economic vicissitudes by modifying your consumption of small luxuries, like clothing from Neiman-Marcus or your annual vacation.
Being middle-class, as Roosevelt astutely realized, is all about SECURITY, which is the absence of risk.
I was led to this thought, as I mentioned, by noticing that in today’s uncertain environment, many people are adjusting by becoming contractors. They offer their services (from web-site design to domestic help to high-end legal work) on an ad-hoc basis, rather than as part of a permanent full-time job with benefits. A steadily increasing number of people get much of their income on Form 1099 rather than Form W-2.
Something similar happened during the Depression, but I saw it start to happen at mid-decade, even before the crisis hit. America has upwards of 20 million small businesses, and many of them are people who are simply marketing their skills as best they can, possibly employing a small number of assistants and tradespeople along the way.
Every entrepreneur understands the linkage between risk and reward, in an immediate and visceral way. There’s no safety net. Your success is determined by your hard work, intelligence, and no small amount of good luck. The reverse is true in equal measure. Plus, luck is out of your control, and it changes on a daily basis.
It makes a lot of sense that people who take a lot of risk should be rewarded for it. On the other hand, Paul Krugman, Robert Reich, and many others who see salvation in a rejuvenated labor movement, fantasize that we can somehow engineer a prosperous but genteel society in which nearly everyone can make a comfortable living without exposure to the gut-wrenching swings faced by entrepreneurs.
And can you blame them? This is a wonderful fantasy! How, indeed, can you focus on the most important task in your life, which is raising your children, if you’re constantly worrying about money? The natural human desire to avoid risk is indeed the source of most of the inherent instabilities in the financial system, and current reform efforts do less than nothing to change this.
(Have you ever seen a TV commercial while watching golf or the evening news, from some insurance company that promises you investments that gain value in good times, but provide good yields in weak times? If this notion attracts you, then you’re part of the problem.)
Market and finance people like me tend to believe that there is a fundamental linkage between risk and reward, cast in stone when the Hebrew God wrote the Ten Commandments. (“Thou shalt not leave thy gamma-exposure unhedged.”) Other people insist that the linkage is not fundamental. They say it’s not only possible, but actually a moral imperative to construct a society in which most people have a job that is both well-paying and secure, so they can rest easy at night.
Which of these views is true is a deep question that I can’t answer. But I will say that we achieved (or appear to have achieved) a near facsimile of the prosperous, stable promised land in the decades after World War II. These of course were the good old days of high labor-union participation.
But they were also days of extremely high rates of capital investment, and a generally closed economy with relatively little dependence on trade. They were the days when Detroit automakers could sign lavishly expensive labor contracts, incorrectly believing that they would never face real competition, and therefore needed no cost-structure flexibility.
We can’t go back to that world. But the fact that it existed suggests that we might be able to construct something like it.
Right now there is a notable lack of new ideas for macro policy that can foster a return to high real growth in the long term. This is what all the headscratching, chinpulling, and posturing from pundits, economists, and elected officials is all about. They got nuthin’.
But I think we can find our way back to the answer. As always, real answers and real change will come from people not heavily invested in the status quo. (Having a Nobel Prize in either economics or peace is a contrary indicator for new ideas and the ability to change.) In the absence of actual good answers, the intelligent policy is for government to step back and leave the private sector to either find the answers or not. This is the essence of the opportunity, and the challenge, facing the Republicans who will be returned to power this November.
The middle class is disappearing because the lack of long-term growth means that we don’t have enough prosperity to give most people a comfortable, risk-free life. This is a secular trend, having nothing to do with the recession that ended twelve months ago. We know that we can have a middle class because we did it once. But we also know that it was very much a historical anomaly.
There’s a right way to do this and a wrong way. Nostalgia for the Fifties is the wrong way. I don’t know what the right way is, but 20 million entrepreneurs will probably be able to find it.
As long as we stop taxing and regulating them to death.
Saturday opinion.
Aaron Blake:
Former World Wrestling Entertainment CEO Linda McMahon (R) spent $454 of her own money on each vote she got in her Connecticut primary win last month, making her campaign the most expensive per-vote in the country during a primary season rife with self-funders.
Self-funders are now running in top governor and Senate race in Connecticut, California, Wisconsin, Florida and New York. What that means is lots of personal money spent, and especially in the primary season, that money was spent on a pretty small pool of voters.
According to numbers crunched by The Fix (and available in a handy, sortable chart here), McMahon led all self-funders by spending $27 million of her own money on less than 60,000 votes in the sparsely attended Nutmeg State GOP primary on Aug. 10.
And she still trails.
David C. Wilson:
Christine O'Donnell's win over the long tenured U.S. Representative Mike Castle, 53% to 47% (+6% points), might have been a shocker to most, but what really happened, and what most observers missed, was that turnout was higher than normal in lower Delaware (Kent and Sussex Counties), and average in upper Delaware (New Castle County).
Polls underestimated these levels for most of the campaign, and thus, missed the trend. Plus, the lack of in-state polling provided no clues about the sources and substance of information that mobilized voters. It turns out that lower Delaware counties, which are traditionally Republican, are losing their liberal and moderate appeal. It suggests that the GOP leadership may not be in as much touch as they think with their constituents. And, questions abound about the ability of existing state GOP leadership's ability to mobilize support given the shock of the O'Donnell win. In sum, evidence points to a geo-political realignment of the GOP within Delaware.
But as Brendan Nyhan has pointed out, it represents 3% of the vote (50K). More...
Coons has been leading in the polls in all head to head match-ups against O'Donnell. And, in the general election, O'Donnell will have to convince independent voters, moderate Republicans, and Castle supporters that she will represent their interests. This will be an uphill battle given that she's already indicated that she feels she can win without "them" referring to the Republican Party Organization, and suggesting the GOP might be too lazy to help her.
All of this bodes well for Coons who will certainly win the Wilmington area, and much of the Wilmington suburbs which make up the largest portion of the state's electorate. But it's tough to gauge Democratic turnout in the state because Coons did not have a primary challenger, and thus we cannot use primary numbers as an indicator of enthusiasm.
It's all about turnout, in Delaware and everywhere else.
Michael Gerson:
In Tea Party theory, inexperience is itself seen as a kind of qualification. People like O'Donnell are actually preferable to people like Rove, because they haven't been tainted by public trust or actual achievement. This is the attitude of the adolescent -- the belief that the world began on their thirteenth birthday. It is also a sign of childish political thought.
Establishment conservatives are not happy, despite what David Brooks (The Backlash Myth) thinks.
Nate Silver:
It is important to maintain some perspective here: Republicans are poised to make very substantial gains in the House. They are favored to take control the chamber, and have a 40 percent chance of winning a net of at least 50 seats, and about a 20 percent chance of winning at least 60 seats.
Still, as the results of this week’s primaries perhaps suggested, there remains considerable uncertainty — and ambiguity — in the forecast. A 95 percent confidence interval on our projections would encompass everything from a Republican gain of 78 seats to a gain of just 12. Although that interval will narrow some before Election Day, there’s still a lot of campaigning — and poll-watching — left to do.
Ezra Klein:
The White House held a conference call today for Elizabeth Warren and various bloggers and writers. Most of it was what you'd expect, but Warren did mention that Rep. Barney Frank once told her that getting a Consumer Financial Protection Bureau was a "pipe dream."
I think some people will see that as a mark against Frank, but he was right, at least judging by Washington's record over the previous 20 or 30 years. In fact, a lot of the Obama administration's accomplishments were pipe dreams.
A near-universal health-care system? Why would Obama and the Democrats succeed when Truman, Nixon, Carter, and Clinton had all failed, and politicians as adept as FDR and LBJ refused to even make the attempt? They've seen the numbers, right? The health-care industry is bigger now, and richer, and there are no more liberal Republicans. There's no way.
The list goes on...
Dana Milbank:
Sorry to interrupt the anti-establishment violence, but could we pause long enough to ask a question: What is this "Republican establishment" of which you speak?
Though it has become a stock storyline to describe besieged party bosses, those peddling this account have largely created a straw man. The Republican establishment of popular imagination, like the Georgetown salon, no longer exists. If there is a Republican establishment, the Tea Party is it.
The "civil war" McKinnon and others describe implies that party leaders are fighting back. Instead, they're stepping out in front of the Tea Party parade and pretending to be drum majors.
Who in the supposed Republican establishment has opposed the Tea Party?
Start with Mitch McConnell, who didn't want Rand Paul. Add those supporting Murkowski (AK), Bennett (UT), Inglis (SC), Castle (DE). See Gerson's post (above) in Milbank's own paper. Throw in Karl Rove on Castle (you'd have to live on another planet to miss that), and you have just another example of Milbank getting it wrong. But then again, the Villagers take everything they are told at face value. What? It's Milbank being snarky? Doubtful.
103 murders up to end of 3rd quarter - Stabroek <b>News</b>
20% above last year's total With the third quarter of this year gone there have been 103 murders which is 20% (all figures rounded) more than the total.
Eric Eisner options Just Cause 2 film rights | <b>News</b>
Square Enix action title, Just Cause 2, could become a Hollywood movie with the news that L+E Pictures, run by Eric Eisne...
CBS <b>News</b> Reporter Arrested for Growing Pot | PopEater.com
Police arrested CBS News correspondent Howard Arenstein and his wife, along with reporter Orly Azoulay, Saturday for drug possession with intent to di.
eric seiger eric seiger
Paul Krugman is on again today about the disappearing middle class, and how the Bush tax cuts are and always have been a huge, unfair giveaway to “the rich,” whoever they are. Because I happen to remember that the Bush tax cuts actually were an across-the-board cut in marginal rates, together with strong reductions in taxes on capital, I wondered how Krugman gets from there to considering them unfair.
Well, of course it’s because high-income people pay more taxes than lower-income people. A LOT more taxes. So any change in marginal rates necessarily affects them more, whether you raise rates or cut them. Clearly enough, Krugman doesn’t have a problem with low tax rates. He has a problem with the fact that some people earn a lot of money.
That got me wondering why we have so much income inequality in the first place. I don’t think there’s one simple answer to that question, but a lot of it comes down to the amount of risk you take.
First, let’s quickly acknowledge a few important things. It’s true that a lack of good education means that millions of unfortunate people have little of worth to trade in return for a good living. That accounts for a lot of inequality at the low end of the scale.
It’s also true that much if not most of the financial industry has shifted from making capital available for investment, to a range of rent-seeking behaviors which are made possible by wrong-headed government regulation. Wall Street and the banking industry are ripping the rest of us off. This accounts for a lot of inequality at the high end.
But what’s happening in the middle? Think about what it means to be middle-class, a category that in much literature represents the ideal of a good, gentle life, conducive to moderation, societal health, and the raising of good children.
In practice, to be middle class means you have a job that gives you little risk and pressure, while also paying you enough money to escape material need. Unlike a small businessman, you don’t ever have to worry if today is the day you lose your biggest customer. Unlike an unemployed unskilled laborer, you don’t have to worry where your next meal is coming from. At worst, you adjust to economic vicissitudes by modifying your consumption of small luxuries, like clothing from Neiman-Marcus or your annual vacation.
Being middle-class, as Roosevelt astutely realized, is all about SECURITY, which is the absence of risk.
I was led to this thought, as I mentioned, by noticing that in today’s uncertain environment, many people are adjusting by becoming contractors. They offer their services (from web-site design to domestic help to high-end legal work) on an ad-hoc basis, rather than as part of a permanent full-time job with benefits. A steadily increasing number of people get much of their income on Form 1099 rather than Form W-2.
Something similar happened during the Depression, but I saw it start to happen at mid-decade, even before the crisis hit. America has upwards of 20 million small businesses, and many of them are people who are simply marketing their skills as best they can, possibly employing a small number of assistants and tradespeople along the way.
Every entrepreneur understands the linkage between risk and reward, in an immediate and visceral way. There’s no safety net. Your success is determined by your hard work, intelligence, and no small amount of good luck. The reverse is true in equal measure. Plus, luck is out of your control, and it changes on a daily basis.
It makes a lot of sense that people who take a lot of risk should be rewarded for it. On the other hand, Paul Krugman, Robert Reich, and many others who see salvation in a rejuvenated labor movement, fantasize that we can somehow engineer a prosperous but genteel society in which nearly everyone can make a comfortable living without exposure to the gut-wrenching swings faced by entrepreneurs.
And can you blame them? This is a wonderful fantasy! How, indeed, can you focus on the most important task in your life, which is raising your children, if you’re constantly worrying about money? The natural human desire to avoid risk is indeed the source of most of the inherent instabilities in the financial system, and current reform efforts do less than nothing to change this.
(Have you ever seen a TV commercial while watching golf or the evening news, from some insurance company that promises you investments that gain value in good times, but provide good yields in weak times? If this notion attracts you, then you’re part of the problem.)
Market and finance people like me tend to believe that there is a fundamental linkage between risk and reward, cast in stone when the Hebrew God wrote the Ten Commandments. (“Thou shalt not leave thy gamma-exposure unhedged.”) Other people insist that the linkage is not fundamental. They say it’s not only possible, but actually a moral imperative to construct a society in which most people have a job that is both well-paying and secure, so they can rest easy at night.
Which of these views is true is a deep question that I can’t answer. But I will say that we achieved (or appear to have achieved) a near facsimile of the prosperous, stable promised land in the decades after World War II. These of course were the good old days of high labor-union participation.
But they were also days of extremely high rates of capital investment, and a generally closed economy with relatively little dependence on trade. They were the days when Detroit automakers could sign lavishly expensive labor contracts, incorrectly believing that they would never face real competition, and therefore needed no cost-structure flexibility.
We can’t go back to that world. But the fact that it existed suggests that we might be able to construct something like it.
Right now there is a notable lack of new ideas for macro policy that can foster a return to high real growth in the long term. This is what all the headscratching, chinpulling, and posturing from pundits, economists, and elected officials is all about. They got nuthin’.
But I think we can find our way back to the answer. As always, real answers and real change will come from people not heavily invested in the status quo. (Having a Nobel Prize in either economics or peace is a contrary indicator for new ideas and the ability to change.) In the absence of actual good answers, the intelligent policy is for government to step back and leave the private sector to either find the answers or not. This is the essence of the opportunity, and the challenge, facing the Republicans who will be returned to power this November.
The middle class is disappearing because the lack of long-term growth means that we don’t have enough prosperity to give most people a comfortable, risk-free life. This is a secular trend, having nothing to do with the recession that ended twelve months ago. We know that we can have a middle class because we did it once. But we also know that it was very much a historical anomaly.
There’s a right way to do this and a wrong way. Nostalgia for the Fifties is the wrong way. I don’t know what the right way is, but 20 million entrepreneurs will probably be able to find it.
As long as we stop taxing and regulating them to death.
Saturday opinion.
Aaron Blake:
Former World Wrestling Entertainment CEO Linda McMahon (R) spent $454 of her own money on each vote she got in her Connecticut primary win last month, making her campaign the most expensive per-vote in the country during a primary season rife with self-funders.
Self-funders are now running in top governor and Senate race in Connecticut, California, Wisconsin, Florida and New York. What that means is lots of personal money spent, and especially in the primary season, that money was spent on a pretty small pool of voters.
According to numbers crunched by The Fix (and available in a handy, sortable chart here), McMahon led all self-funders by spending $27 million of her own money on less than 60,000 votes in the sparsely attended Nutmeg State GOP primary on Aug. 10.
And she still trails.
David C. Wilson:
Christine O'Donnell's win over the long tenured U.S. Representative Mike Castle, 53% to 47% (+6% points), might have been a shocker to most, but what really happened, and what most observers missed, was that turnout was higher than normal in lower Delaware (Kent and Sussex Counties), and average in upper Delaware (New Castle County).
Polls underestimated these levels for most of the campaign, and thus, missed the trend. Plus, the lack of in-state polling provided no clues about the sources and substance of information that mobilized voters. It turns out that lower Delaware counties, which are traditionally Republican, are losing their liberal and moderate appeal. It suggests that the GOP leadership may not be in as much touch as they think with their constituents. And, questions abound about the ability of existing state GOP leadership's ability to mobilize support given the shock of the O'Donnell win. In sum, evidence points to a geo-political realignment of the GOP within Delaware.
But as Brendan Nyhan has pointed out, it represents 3% of the vote (50K). More...
Coons has been leading in the polls in all head to head match-ups against O'Donnell. And, in the general election, O'Donnell will have to convince independent voters, moderate Republicans, and Castle supporters that she will represent their interests. This will be an uphill battle given that she's already indicated that she feels she can win without "them" referring to the Republican Party Organization, and suggesting the GOP might be too lazy to help her.
All of this bodes well for Coons who will certainly win the Wilmington area, and much of the Wilmington suburbs which make up the largest portion of the state's electorate. But it's tough to gauge Democratic turnout in the state because Coons did not have a primary challenger, and thus we cannot use primary numbers as an indicator of enthusiasm.
It's all about turnout, in Delaware and everywhere else.
Michael Gerson:
In Tea Party theory, inexperience is itself seen as a kind of qualification. People like O'Donnell are actually preferable to people like Rove, because they haven't been tainted by public trust or actual achievement. This is the attitude of the adolescent -- the belief that the world began on their thirteenth birthday. It is also a sign of childish political thought.
Establishment conservatives are not happy, despite what David Brooks (The Backlash Myth) thinks.
Nate Silver:
It is important to maintain some perspective here: Republicans are poised to make very substantial gains in the House. They are favored to take control the chamber, and have a 40 percent chance of winning a net of at least 50 seats, and about a 20 percent chance of winning at least 60 seats.
Still, as the results of this week’s primaries perhaps suggested, there remains considerable uncertainty — and ambiguity — in the forecast. A 95 percent confidence interval on our projections would encompass everything from a Republican gain of 78 seats to a gain of just 12. Although that interval will narrow some before Election Day, there’s still a lot of campaigning — and poll-watching — left to do.
Ezra Klein:
The White House held a conference call today for Elizabeth Warren and various bloggers and writers. Most of it was what you'd expect, but Warren did mention that Rep. Barney Frank once told her that getting a Consumer Financial Protection Bureau was a "pipe dream."
I think some people will see that as a mark against Frank, but he was right, at least judging by Washington's record over the previous 20 or 30 years. In fact, a lot of the Obama administration's accomplishments were pipe dreams.
A near-universal health-care system? Why would Obama and the Democrats succeed when Truman, Nixon, Carter, and Clinton had all failed, and politicians as adept as FDR and LBJ refused to even make the attempt? They've seen the numbers, right? The health-care industry is bigger now, and richer, and there are no more liberal Republicans. There's no way.
The list goes on...
Dana Milbank:
Sorry to interrupt the anti-establishment violence, but could we pause long enough to ask a question: What is this "Republican establishment" of which you speak?
Though it has become a stock storyline to describe besieged party bosses, those peddling this account have largely created a straw man. The Republican establishment of popular imagination, like the Georgetown salon, no longer exists. If there is a Republican establishment, the Tea Party is it.
The "civil war" McKinnon and others describe implies that party leaders are fighting back. Instead, they're stepping out in front of the Tea Party parade and pretending to be drum majors.
Who in the supposed Republican establishment has opposed the Tea Party?
Start with Mitch McConnell, who didn't want Rand Paul. Add those supporting Murkowski (AK), Bennett (UT), Inglis (SC), Castle (DE). See Gerson's post (above) in Milbank's own paper. Throw in Karl Rove on Castle (you'd have to live on another planet to miss that), and you have just another example of Milbank getting it wrong. But then again, the Villagers take everything they are told at face value. What? It's Milbank being snarky? Doubtful.
103 murders up to end of 3rd quarter - Stabroek <b>News</b>
20% above last year's total With the third quarter of this year gone there have been 103 murders which is 20% (all figures rounded) more than the total.
Eric Eisner options Just Cause 2 film rights | <b>News</b>
Square Enix action title, Just Cause 2, could become a Hollywood movie with the news that L+E Pictures, run by Eric Eisne...
CBS <b>News</b> Reporter Arrested for Growing Pot | PopEater.com
Police arrested CBS News correspondent Howard Arenstein and his wife, along with reporter Orly Azoulay, Saturday for drug possession with intent to di.
eric seiger eric seiger
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