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Economic hypothesis

by rdf
Sun Nov 27th, 2005 at 10:56:31 AM EST

The middle class wage earner in the US has seen his standard of living remain about the same for the past several decades. Those in abject poverty have become a smaller segment of the population (at least until recently). The rich and super-rich have seen their share of both income and wealth rise substantially.

During the same period the US has amassed huge deficits, both foreign and domestic. My guess is that if one were to compare the growth in the size of the deficits with the growth in the assets of the wealthy they would be close in size. I assume all the corrections for inflation and similar factors are taken into account.

If this is even approximately true then what it shows is that the rich have been living off funds borrowed from others by the government on their behalf. An interesting economic development in that case.

As for the stagnant working class, I think this is a sign that in a fully developed economy the average person is "worth" only so much as an economic engine and thus there is little prospect for real increase in standard of living. The middle class has all that it needs in terms of necessities and even a fair amount of luxuries. If it were to get "richer" then it would be able to purchase more, driving up demand, thus driving up prices and making the effective purchasing power back where it started from.

So my hypothesis is that the top class has been taking from the US treasury and foreign treasuries to allow it command an unsustainable standard of living at everybody else's expense. I haven't found any hard numbers to prove this, but I still think I'm heading in the right direction.

I would appreciate some statistics if any one can cite them (either to prove or disprove my guess).

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Economic hypothesis | 30 comments (30 topical, 0 editorial, 0 hidden)

Re: Economic hypothesis (none / 0)

Go for it...sounds about right to me...will be interesting what is found...

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Sun Nov 27th, 2005 at 12:54:15 PM EST

Re: Economic hypothesis (none / 0)

As for the stagnant working class, I think this is a sign that in a fully developed economy the average person is "worth" only so much as an economic engine and thus there is little prospect for real increase in standard of living.

This was argued by Smith, Malthus, Ricardo and Mill. They argued that the netural tendency of real wages was to converge to just abowe a minimally acceptable standard of living.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Nov 27th, 2005 at 01:33:25 PM EST

Re: Economic hypothesis (none / 0)

You mean they were marxists before Marx?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Nov 27th, 2005 at 05:26:05 PM EST
[ Parent ]

Re: Economic hypothesis (none / 0)

No. Smith and Ricardo were mostly descriptive, not normative. I don't know about Malthus, but Mill (whose overriding concern was ethics) was strongly in favour of population control as the only way to ensure a continued increase in the standard of living of the masses.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Nov 27th, 2005 at 08:18:19 PM EST
[ Parent ]

Not even Marx... (4.00 / 2)

...was a marxist:

"Je ne suis pas un Marxiste." K.M.

by jandsm on Mon Nov 28th, 2005 at 05:11:41 AM EST
[ Parent ]

Re: Not even Marx... (4.00 / 2)

Neither was Christ a Christian.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Mon Nov 28th, 2005 at 05:13:15 AM EST
[ Parent ]

Yet Marx was a Christian,... (4.00 / 2)

...and Jesus Christ a marxist.

by jandsm on Mon Nov 28th, 2005 at 06:05:22 AM EST
[ Parent ]

Re: Yet Marx was a Christian,... (none / 1)

Now you're being anachronistic.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Mon Nov 28th, 2005 at 06:06:14 AM EST
[ Parent ]

Re: Economic hypothesis (4.00 / 2)

As for the stagnant working class, I think this is a sign that in a fully developed economy the average person is "worth" only so much as an economic engine and thus there is little prospect for real increase in standard of living.

Then how do you explain the rise in living standards and decrease in poverty and inequality that occurred from the end of WWII to the 1970s - the "Thirty Glorious Years"?

My own view is that the working class (in the US) has been systematically paid less than they are worth for the last 25 years.

Productivity is still rising (slowly between the mid 70s and mid 90s, faster since), so the value of the average person's labor is still rising. Why shouldn't living standards rise right along with it?

Because the institutional structure of the economy has changed (again, more in the US than elsewhere). The institutions that used to make growth with a fair distribution of the gains possible have been kneecapped: union busting, cuts in social programs, the discrediting of Keynesian economics and so on.

Keynes used to talk about the "euthanasia of the rentier class." Well, they ain't going down without a fight.

I really reject the idea that there is some kind of "iron law of economics" behind stagnating living standards. It's not really an economic issue. It's a political one.

by TGeraghty on Sun Nov 27th, 2005 at 10:11:41 PM EST

Re: Economic hypothesis (4.00 / 2)

Keynesian economics was never discredited. It just took a break for twelve years, under Reagan and Bush I. (Eight more under Bush II.) Ever notice that all the famous Neoclassicalists are (a) retired, (b) writing growth theories, or (c) writing on political philosophy? It's because they were never able to solve the puzzle. Never came close.

Milton Friedman's entire career was based on a deeper understanding of something that was simply common sense to Keynes: That money was not neutral and did matter. (Keynes wrote A Tract on Monetary Reform decades before Friedman's Monetary History of the US.) Friedman, by the way, got the story wrong on the Depression, in my opinion. It wasn't the Fed's action that caused the Depression. It was its inaction.

Supply-Side economics was not invented by Mundell and Laffer, nor was it first carried out by Reagan. It was invented by Solow and Tobin, and Kennedy put it into action in the early '60s. And, unlike Reagan's tax cuts (which were completely. fucking. useless.), Kennedy's really did help to bring an economic boom -- the largest in pre-Clinton US history -- because marginal rates were so damned high. (I'm sorry. I'm as liberal as the next guy, but 70%+ of income is just too much taxation.)

I'll give my hypothesis in a new diary, shortly. I agree with some of rdf's point, but not all of it. It's much more complex, in my opinion.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (myfriends@thisispancakes.com) on Mon Nov 28th, 2005 at 12:03:00 AM EST
[ Parent ]

Re: Economic hypothesis (none / 1)

I agree with your point that Keynesian economics was never really debunked, but it is somewhat out of fashion these days.

Looking forward to reading your diary.

by TGeraghty on Mon Nov 28th, 2005 at 12:19:49 AM EST
[ Parent ]

Re: Economic hypothesis (4.00 / 2)

It depends on where you look. The Ivy League in America is dominated by Keynesians -- New Keynesians, to be precise. Schools in the Mid-West are dominated by Neoclassicalists. Schools on the West Coast are a mixture of the two. (UC-Berkeley, for example, is very Keynesian. UCLA leans Neoclassicalist.) Schools in the South are very conservative/libertarian, often with staffs of Austrians and Supply-Siders.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (myfriends@thisispancakes.com) on Mon Nov 28th, 2005 at 12:38:04 AM EST
[ Parent ]

But doesn't this still render the academic (none / 1)

view on economics irelevant in poltical terms? Whilst there are still good schools peddling austrian and supply-side measures there is no hope of actually disrupting the psychological consensus on the right that "Keynes is bunk."

(Of course, you can point out that the relative academic support for global climate change has failed to persuade various parts on the right, but overall I do think that the concept of global climate change is making more headway than the idea that the Reagan years may not have been all perfect...)

I too am looking forward to your diary.

by Metatone (metatone [a|t] gmail (dot) com) on Mon Nov 28th, 2005 at 05:21:57 AM EST
[ Parent ]

Keynes (none / 0)

What about the famous dictum "You cannot have a rising money supply and rising unemployment?"

No one could have predicted

by ATinNM on Mon Nov 28th, 2005 at 10:50:49 PM EST
[ Parent ]

Re: Economic hypothesis (none / 0)

TGeraghty:

Then how do you explain the rise in living standards and decrease in poverty and inequality that occurred from the end of WWII to the 1970s - the "Thirty Glorious Years"?

The re-industrialization of Europe and Japan following the destruction of WW II. The demographic increase during the 1950's and 1960's with increased consumer demand (and consumers!) that encouraged employment while not increasing wage rate competition - the "Baby Boom." Falling commodity prices, cheap energy, pent-up demand for consumer goods following the Depression, infrastructure investment by goverments and local authorities, relatively stable currencies, dramatic increase in an technically educated labour force, lowered transportation cost, the upside benefits of mass production, the Marshall Plan, transfer of the results of military R&D to civilian products (microcomputer is only the best known), the forming of the EEC, rise of synthetic and cheaper materials in industrial production (e.g., plastics,) and the shedding of unprofitable political colonies for economic domination.

To name a few things going on at the time.

I don't think any one of this was 'The Reason' but all of these influencing all the others all the time and with some of the bills (e.g., burning oil for energy leading to the rise of Greenhouse Gases) were foisted off to a later date.

No one could have predicted

by ATinNM on Mon Nov 28th, 2005 at 10:48:26 PM EST
[ Parent ]

Conservative failure (3.33 / 3)

Apropos of this discussion here is an op-ed from today's NY Times:
http://www.nytimes.com/2005/11/28/opinion/28miller.html

(I don't know if you need a sub to read it, so I'll summarize).
The hook is that the conservative Olin foundation is going out of business today, having given all its money away to neo-con think tanks. This, along with several other wealthy conservatives, supported the rise of the neo-con think tank movement that was so "successful" in getting its ideas translated into policy over the past 30 years.

I take it, however, as an admission of defeat. By giving advice on how liberals could create their own think tanks the writer is acknowledging that the neo-con movement has failed to reform society. Their accomplishments:

1. Two simultaneous failed wars
2. Stagnation of the working class
3. Rise of the super rich
4. Rise of poverty
5. Destruction of the manufacturing base
6. Record domestic and foreign deficits
7. Loss of international competitiveness
8. Decline in educational achievement
9. Loss of leadership in scientific R&D
10. Rise of global warming

So, now the writer says, in effect: "Please liberals come up with some new think tanks and save us."

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Mon Nov 28th, 2005 at 10:44:52 AM EST

totally inaccurate interpretation of this (none / 0)

article. Conservative failure???, it's just not what the article says. The closing paragraphs are (emphasis is mine, not because I agree with it, but to show how inaccurate rdf's summary of the article is):

So, is it possible to create a liberal version of the John M. Olin Foundation? I have my doubts. The success of any idea certainly depends to some extent on whether it can muster financial support, and it may also benefit from effective marketing. But in the end, not all ideas are equal. Some are simply better than others. After all, if money were everything, then liberalism would have nothing to worry about: the Ford Foundation's coffers alone dwarf the combined resources of the conservative grant makers.
Conservatives never would have risen to prominence without their compelling critique of the welfare state, their faith in the power of free markets to create economic prosperity, and their belief that religion can play a constructive role in the public square.
The economist Thomas Sowell once joked that Hank Aaron was a lucky man, because he was always stepping up to the plate when a home run was about to be hit. Likewise, conservative ideas took flight not because wealthy philanthropists were suddenly willing to finance them, but because they identified actual problems and offered sensible solutions.
If liberals now want to create a counter-counterintelligentsia, it's going to take more than money; what they truly need is a set of really good ideas.

I feel we should be able to count upon reasonable accuracy of facts and interpretation when we read a post.

This is a totally inaccurate summary of this article. The writer does not say, or imply: "Please liberals come up with some new think tanks and save us." In fact it's the opposite. Please go [http://www.nytimes.com/2005/11/28/opinion/28miller.html?pagewanted=all]read this for yourself.

by wchurchill on Mon Nov 28th, 2005 at 11:50:43 PM EST
[ Parent ]

Re: totally inaccurate interpretation of this (none / 0)

If liberals now want to create a counter-counterintelligentsia, it's going to take more than money; what they truly need is a set of really good ideas.

Of course the author is full of it here.

What the success of conservatism really shows is that some really lousy ideas with little basis in reality (but big benefits to a privileged class) can be foisted onto the public agenda with enough money and media control, and some luck.

by TGeraghty on Tue Nov 29th, 2005 at 12:42:17 AM EST
[ Parent ]

TG, your comment misses my point. I do (none / 0)

not agree with all of the comments in this article--I didn't bring the article up--rdf did. I'm just concerned with someone totally misrepresenting the comments in an article--which is what rdf did-- I made that point specifically by introducing the quote from the article as follows:

The closing paragraphs are (emphasis is mine, not because I agree with it, but to show how inaccurate rdf's summary of the article is)

Maybe you could review the article, and rdf's summary, and my comments--and then give us your thoughts.

by wchurchill on Tue Nov 29th, 2005 at 12:54:37 AM EST
[ Parent ]

Re: TG, your comment misses my point. I do (none / 1)

I agree you could get the wrong view of the author's views by just reading rdf's comments.

I'm not sure rdf deserved a "2" for that, but I always prefer positive reinforcement.

by TGeraghty on Tue Nov 29th, 2005 at 01:05:35 AM EST
[ Parent ]

I'll try to express this politely... (none / 1)

I think you yourself have misinterpreted rdf's post.

He provides only a very shorthand summary of the article. Arguably insufficient for those not familiar with the history of the rise of the US right. He then goes on and
says that he interprets the evidence in fact (and indeed the whole sociological genesis of the article) as pointing to conservative failure, rather than the picture of success provided in the article.

by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 29th, 2005 at 05:03:49 AM EST
[ Parent ]

I agree with your criticisms re: Jerome's (none / 0)

post, and responded back to his post. Thank you for making that point. However, here, after rereading all of the material, I must respectively disagree.

He provides only a very shorthand summary of the article.

Shorthand or verbose, we need to be accurate in our summaries and discussions on the available facts--IMO, this is a technique worthy of the worst of the MSM. I really think my post speaks for itself, particularly the last few paragraphs of the original article I quoted.

I believe I understand his criticism of the results of the conservative programs, and the "tongue in cheek" nature of some of his comments. But these are based on setting up a strawman description of an article that is patently false--and the article requires a subscription, I believe, to link to it, so a number of readers will, I think, accept the strawman. I can't understand your position on this one, Metatone. What is wrong with asking for accuracy on factual things? "Everyone is entitled to his own opinion, but not his own facts."

by wchurchill on Tue Nov 29th, 2005 at 11:55:02 AM EST
[ Parent ]

Re: I agree with your criticisms re: Jerome's (none / 1)

Hm, well I probably got a hot button going due to some conversations on another site. Apologies if I was rude.

You phrased things ambiguously:

article. Conservative failure???, it's just not what the article says. The closing paragraphs are

The issue there is that rdf never represented "conservative failure" as the view of the article. He says it is what he thinks. So that got me going.

rdf's summary of the article is clearly inadequate to discuss the article. The sadness for me is that I knew exactly what the article was going to claim before you quoted it. But then, maybe I've read too many histories of the US right so I know how people want to present it. You are entirely correct that whilst I might have interpreted the shorthand correctly, that's not what any sane individual was likely to do.

by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 29th, 2005 at 02:34:59 PM EST
[ Parent ]

Re: Economic hypothesis some data (4.00 / 2)

Here is the best I could find to figure the gain in wealth over the period. Most charts like to talk in percentages, not absolute dollar amounts so the calculations are mine.

Table 3. Mean Wealth Holdings and Income by Wealth or Income Class, 1983-2001
(In thousands, 2001 dollars)

	Top	Next	Next	Next	Top	4th	3rd	Bottom
Variable	1.0%	4.0%	5.0%	10.0%	20.0%	20.0%	20.0%	40.0%	All
A. Net Worth
1983	7,796	1,289	560.8	302.8	939.3	145.2	60.3	5.1	231.0
2001	12,692	2,453	937.4	490.3	1,604.7	215.3	75.0	2.9	380.1
% change	62.8	90.2	67.2	61.9	70.8	48.3	24.4	-43.6	64.6
% of gain	32.8	31.2	12.6	12.6	89.2	9.4	2.0	-0.6	100.0
B. Financial Wealth
1983	6,722	984	384.6	172.4	715.3	61.9	13.3	(6.9)	156.7
2001	14,075	1,833	669.8	301.5	1,388.4	102.7	21.5	(10.1)	298.5
% change	109.4	86.2	74.2	74.9	94.1	65.8	61.4	46.1	90.5
% of gain	51.9	23.9	10.1	9.1	95.0	5.7	1.2	-0.9	101.0
C. Income
1982	655	169	105.1	78.9	132.2	55.2	36.1	14.7	51.0
2000	1,117	224	139.7	102.3	186.8	69.3	44.3	17.9	67.2
% change	70.5	32.5	33.0	29.7	41.3	25.6	22.7	22.0	31.9
% of gain	28.4	13.5	10.6	14.4	67.0	17.4	10.1	7.9	102.3

Source: own computations from the 1983 and 2001 Surveys of Consumer Finances.
For the computation of percentile shares of net worth, households are ranked according to their net worth;
for percentile shares of financial wealth, households are ranked according to their financial wealth; and
for percentile shares of income, households are ranked according to their income.
Source:
Levy Institute

Wealth increase over the period:
Households in 2000 is about 106,000,000
So top 1% = 1,060,000
Population 1983 234,000,000
Population 2000 276,000,000
Households in 1983 is about 90,000,000
Wealth in 1983 is 900,000 X 7,796,000 = 7,016,400,000,000
Wealth in 2001 is 1,060,000 X 12,692,000 = 13,453,520,000,000
Gain in wealth = 6,437,120,000,000

So, if I have done this correctly, the top 1% got about $6 billion wealthier in approximately 20 years. Not even close to the increase in the size of the deficit. Next conjecture will concern the size of the military spending over the period...

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Mon Nov 28th, 2005 at 02:28:56 PM EST

By 2001 Dollars (none / 0)

I take it you have adjusted fur Purchasing Power Parity?

No one could have predicted

by ATinNM on Mon Nov 28th, 2005 at 10:23:58 PM EST
[ Parent ]

Re: Economic hypothesis some data (none / 0)

The figure is $6 trillion, not billion, which is not all that far from the US federal debt over this period.

In the original post, you didn't say which deficit you meant:

Federal deficit?
Combined govt (federal/state/local) deficits?
Trade deficit?
Balance-of-payments deficit?

by tyronen on Wed Nov 30th, 2005 at 03:45:46 PM EST
[ Parent ]

Re: Economic hypothesis some data (none / 0)

Oops! Thanks for catching that. I should use scientific notation.

My guess was that the deficits (domestic federal and trade) were basically used to make the rich richer. It seems like I'm mostly correct.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Wed Nov 30th, 2005 at 04:36:22 PM EST
[ Parent ]

Not necessarily (none / 0)

The figures being of similar magnitude implies at most correlation, not causation. Even correlation requires stronger proof than that.

by tyronen on Wed Nov 30th, 2005 at 06:12:25 PM EST
[ Parent ]

Household Income (4.00 / 2)

by btower on Mon Nov 28th, 2005 at 04:43:38 PM EST

ad hominem attacks (none / 0)

I usually don't reply to ad hominem attacks since I prefer to address policy issues, but since there is an entire subthread devoted to what I might have meant I guess I should respond.

My point about the Times Op-ed article was to point out, (my opinion), that the author, by offering advice to liberals on how to create effective think tanks, was implicitly admitting that the policies of the neo-con think tanks had failed to lead to the type of economy they expected. Whether the author meant to say this explicitly or not you would have to take up with him.

The scope of deviation allowed from right wing commentators in the US is currently very limited. They tend to bring up the same points and, in many cases, use the exact same phraseology. Several conservative organizations send out faxes daily with the suggested "talking points."

So, when a neo-con commentator starts to give advice to liberals on how to better get their message out I think it represents a sign that things are not going well with their worldview and it is reasonable to interpret this as a sign of despair. If you don't like my facetious literary style, I'm sorry, but I think economic topics are dry enough that a little humor (OK lame humor) is not out of place occasionally.

I did not put words into the author's mouth, but I think it is legitimate to question his motivation. It is not appropriate, however, to question mine. I don't hide my identity and my web site makes my viewpoints on society pretty clear. I don't work for any political or economic organization and my simple goal is to leave this planet at least as well off as when I arrived. At least in so far as my actions are concerned. That's why I spent my career working for non-profit organizations.

As Jerome's recent posting indicated there is entirely too much arguing on blogs and not enough discussion. I don't intend to contribute any more than this reply to that trend.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Tue Nov 29th, 2005 at 12:57:39 PM EST

Economic hypothesis | 30 comments (30 topical, 0 editorial, 0 hidden)

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