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The neoliberal revolution

by Jerome a Paris Wed May 30th, 2007 at 06:05:25 AM EST

This graph (from this report on economic mobility - or the lack thereof (pdf), via ManfromMiddletown's diary on the decline of unions in the USA in the past 40 years) shows the fundamental nature of the Reagan/Thatcher revolution: wealth is created (or, often, captured) at the expense of the middle classes.

GDP numbers look good, but not their repartition. Proponents argue that the wealth could be distributed, as it is created in bigger numbers, but somehow it isn't, and their killer argument against redistribution is that it would reduce the wealth creation, and thus should be avoided. The elites have created a win-win situation for them - or, more to the point, a lose-lose situation for middle classes: either there is wealth, as long as it's not shared, or there isn't any wealth at all.

Go back to work. It's better if some of us enjoy the fruits of that labor, rather than noone, right?


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Looking more closely at the graph, it's rather clearly Reagan's first two years, Bush 1 and Bush 2. Was Bush 1 more neolib than Reagan?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed May 30th, 2007 at 07:08:23 AM EST
but he presided over the first wave of "downsizing".

What can be noted is that under Republican presidents, recessions are a lot more painful for the middle classes: they bear most of the pain, and no longer catch up when growth comes back. You can see that ratchet down effect in each case: 1981, 1990, 2001. The most recent period is even more extreme in that, so far, the median wage has not increased at all, even though productivity is shooting up at unprecedented rates.

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

by Jerome a Paris (etg@eurotrib.com) on Wed May 30th, 2007 at 07:45:01 AM EST
[ Parent ]
I'm going to try to write more on this later.

The report you and I linked to is really interesting.

American acceptance of income inequality is predicated on the belief that class in America is fundamentally fluid so that one generation can be born poor and "work their way up" to become wealthy.  That flies in the face of reality, and Americans have caught on to this.

2006 saw a Democratic surge where candidates won by talking about economic issues, it wasn't Iraq.  Once people start questioning the power structure in a country, things can change rapidly.  And I think that there's an increasing fear among the neo-liberals in the US that unless they make concessions, there's the real danger that a candidate (like John Edwards) can come in and push through something like a second New Deal.  That scares the shit out of them.

I'm happy to see that my country looks to finally be on the path to change, but I'm afraid that Europe is headed in the opposite direction with Merkel and Sarkozy.  

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Wed May 30th, 2007 at 09:52:00 AM EST
[ Parent ]
In the US Jimmy Carter was the pioneer of "deregulaton".
by rootless2 on Thu May 31st, 2007 at 01:53:26 AM EST
[ Parent ]
Not to be a spoilsport, but it seems to me that the divergence on the graph begins in the Carter years. Now, I don't know enough about Carter's policies to say whether this is a result of his presidency or a carryover from the Nixon/Ford administration, but the latter seems likely, since it corresponds very well with the widening of the gap during the reign of George II Bush - his administration is staffed primarily with old Nixon cronies, after all.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 30th, 2007 at 07:38:14 AM EST
You're probably right, but others cold say there is no big dfference between the Republicans and the democrats n trems of economic policy...

Anyway, welcome to European Tribune! Maybe you will be able to make a diary about the "Danish model"...


"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Wed May 30th, 2007 at 07:53:01 AM EST
[ Parent ]
There is a big difference - and there are divisions in both parties. The Dems have a strong wall street/finance free trade component - the neolibs. The republicans draw more from the military/extractive-industry sectors. The Dems have a dissident populist wing and the Thugs have a dissident small-government/conservative wing.
by rootless2 on Thu May 31st, 2007 at 02:07:32 AM EST
[ Parent ]
but it is bridged again before the end of the Carter years. It's only from Reagan onwards that median wages no longer catch up after productivity after recessions (or otherwise), and start losing ground all the time - except, barely, during the Clinton years, where the gap no longer widens (but does not shrink either).

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed May 30th, 2007 at 08:18:06 AM EST
[ Parent ]
You're right. Reading graphs from a screen is - apparently - a Bad Idea...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 30th, 2007 at 08:35:15 AM EST
[ Parent ]
by Laurent GUERBY on Wed May 30th, 2007 at 02:35:44 PM EST
[ Parent ]

The real gap started in the early 1980's.  Remember one of Regan's first acts in office was to turn on the Air Traffic Controllers one of the few unions to support him.

It turns from a small difference to a yawning gap in the 1990's

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Wed May 30th, 2007 at 09:57:54 AM EST
[ Parent ]
I think that 1974=100 hear, the person entering it must have transposed the numbers.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
by ManfromMiddletown (manfrommiddletown at lycos dot com) on Wed May 30th, 2007 at 11:38:27 AM EST
[ Parent ]
For what it's worth, and contrarily to what is often said, the Carter administration started cutbacks in social programs, the deregulation of business (esp. the airlines and telecommunications industries), and military budget hikes during the late 70's. Carter also appointed Volcker at the Federal reserve where he intentionnally provoked the recession that caused the highest unemployment since the great depression (up to >10% in 82). In fact, a great many Carter political appointments were, like Volcker, on the trilateral commission which was the first planning committee by multinational corporations.
by Fete des fous on Wed May 30th, 2007 at 03:47:08 PM EST
[ Parent ]
Jimmy Carter was the Tony Blair of American politics. Bush I only came into office because Carter had so alienated the base of the Democratic party that there was a bitter intercine struggle. Since then, we have had the neolibs on the Dem side and neocons on the Rep side - two groups that each assist in building the environment for the others.
by rootless2 on Thu May 31st, 2007 at 02:03:05 AM EST
[ Parent ]
The report also highlights that the increase in family income over the past 30 years has been due in no small part to the fact that more women are working now than in the past. In fact it states that between 1974 and 2004 real income for males in their thirties has declined by 12%.

It would be interesting to see data on the historical trends of average or median real hourly wages over the past half century or so. Or the historical data on median income growth per person rather than household.

Another interesting indicator, would be how the increase in family income due to more family members working, compares with the increased family costs in a household where two adults are working. These would result from the fact that much of the caretaking and household activities (from childcare to cleaning, to increased costs of eating out relative to eating at home) are now purchased and the increased cost of such things as transportation to and from work, work related expenses etc. due to more household members working.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Wed May 30th, 2007 at 10:00:27 AM EST

That's median income

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

by Jerome a Paris (etg@eurotrib.com) on Wed May 30th, 2007 at 10:44:10 AM EST
[ Parent ]
So the only ones to increase their median income have been "females 15-20"?

Can the last politician to go out the revolving door please turn the lights off?
by Migeru (migeru at eurotrib dot com) on Wed May 30th, 2007 at 10:45:55 AM EST
[ Parent ]
females above 15 goes all the way to 64 (and more, presumably), not just to 24...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed May 30th, 2007 at 10:59:39 AM EST
[ Parent ]
Is this adjusted for workforce participation?

Or is it possible that in 1974 50% of women worked earning $30,000/year, and now 95% work earning $25,000/year?  I mean is it possible that this is essentially a statistical mirage?

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Wed May 30th, 2007 at 11:30:02 AM EST
[ Parent ]
McDonald's pays more to work the cash register than Mr McDonald paid to babysit his kids.  Big woop.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
by ManfromMiddletown (manfrommiddletown at lycos dot com) on Wed May 30th, 2007 at 11:05:18 AM EST
[ Parent ]
Yes but babysitting is just one item: For example say that a non-working spouse of a family making 30.000 dollars a year starts working, contributing an extra 15.000 dollars per year to household income. If there are no publicly provided social services (or poor social services) or support from other family members, there are extra costs that go along with this decision. Extra transportation costs, more eating out, someone to tend to the house, daycare for the children etc. The sum total of these extra costs is flexible, but only up to a point, and anyway while the family income rises, so do the family costs. Thus even if the increase in income is 15.000 dollars, total income minus basic expenses increases certainly by far less - and might even decline (depending on the salary of the spouse obviously).

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed May 30th, 2007 at 11:51:54 AM EST
[ Parent ]
Proponents argue that the wealth could be distributed, as it is created in bigger numbers, but somehow it isn't, and their killer argument against redistribution is that it would reduce the wealth creation, and thus should be avoided.

Economists... Damn you all to hell!

Under Pareto efficiency, an outcome is more efficient if at least one person is made better off and nobody is made worse off. This seems a reasonable way to determine whether an outcome is efficient or not. However, some believe that in practice it is almost impossible to make any large change such as an economic policy change without making at least one person worse off. Under ideal conditions, exchanges are Pareto efficient since individuals would not voluntarily entered into them unless they were mutually beneficial. (Not all exchanges are Pareto superior: an exchange would not be superior if external costs exist, as they often do. If the voluntary exchange led to negative externalities such as pollution that hurt a third party, it would not be Pareto superior.)

Using Kaldor-Hicks efficiency, an outcome is more efficient if those that are made better off could in theory compensate those that are made worse off and lead to a Pareto optimal outcome. Thus, a more efficient outcome can in fact leave some people worse off.

The key difference is the question of compensation. Kaldor-Hicks does not require compensation actually be paid, merely that the possibility for compensation exists, and thus does not necessarily make each party better off (or neutral). Pareto efficiency does require making each party better off (or at least no worse off).



Can the last politician to go out the revolving door please turn the lights off?
by Migeru (migeru at eurotrib dot com) on Wed May 30th, 2007 at 10:48:37 AM EST
http://angrybear.blogspot.com/2007/05/this-post-looks-at-disposable-income-by.html


[...]
Well, let's look at Reagan's performance... he was the best of the Republicans by this (and a number of other measures). Before we begin, note that in 1952, the year before Ike took office, real disposable income less the change in real debt per person in year 2000 dollars was $8,981, as shown in the above graph. In 2006, it was $27,634.

Now, say Reagan's Republican-best 2.26% annual growth rate had been maintained throughout the entire sample. In that case, by 2006, the real disposable income less the change in real debt per person would be at $30,069. Thus, at the same level debt, we'd have, on average, more real disposable income. Or, we'd have the same real disposable income on average, but less debt. Or, more likely, some combination of the two.

Sounds pretty good, huh? The miracle of compound interest and all that good stuff.

Now what if the growth rate achieved during the JFK/LBJ years - the worst performance by any of the Democrats in the sample - had been maintained throughout the entire period? By 2006, we'd have $45,059. Almost 50% more. In 54 years. Carter, of course, did even better, and Clinton better still; at $55,507 its not enough to lap Reagan, but its coming up on the stretch.

Consider the difference between $27,634 that we actually observed, and $45,059 - what we could have achieved with JFK/LBJ's annualized rates. That money could have bought real things, and made real people better off. It could have bought food and medicine, extended lives, created jobs. How much better things could be if people voted for candidates that support real growth and fiscal responsibility.
[...]

by Laurent GUERBY on Wed May 30th, 2007 at 02:40:37 PM EST
Here's a nice example of neoconomics
ttp://www.huffingtonpost.com/jamie-lincoln-kitman/chrysler-at-the-gates-of-_b_49638.html

Take a perhaps $15B negative, steal assets from worker funds, strip mine assets a la post USSR Russia, funnel funds into personal enrichment and political power.

Note that the nice German company did not even want to discuss worker buyouts.

by rootless2 on Thu May 31st, 2007 at 01:48:48 AM EST


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