Wednesday, April 23, 2014
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The Strange Case of American Inequality

BERKELEY – Unless something goes unexpectedly wrong in 2014, the level of real per capita GDP in the United States will match and exceed its 2007 level. That is not good news.

To see why, consider that, during the two business cycles that preceded the 2007 downturn, the US economy’s real per capita GDP grew at a 2% average annual pace; indeed, for a century or so, the US economy’s real per capita GDP grew at that rate. So US output is now seven years – 14% – below the level that was reasonably expected back in 2007. And there is nothing on the horizon that would return the US economy to – or even near – its growth path before the 2008 financial crisis erupted. The only consolation – and it is a bleak consolation indeed – is that Europe and Japan are doing considerably worse relative to the 2007 benchmark.

The US economy’s annual per capita underperformance in 2014 will thus amount to $9,000. That means $9,000 per person per year in consumer durables not purchased, vacations not taken, investments not made, and so forth. By the end of 2014, the cumulative per capita waste from the crisis and its aftermath will total roughly $60,000.

If we project that forward – with nothing visible to restore the US to its pre-2008 growth path – at the annual real discount rate of 6% that we apply to equity earnings, the future costs are $150,000 per capita. If we use the 1.6% annual real discount rate at which the US Treasury can borrow via 30-year inflation-protected Treasuries, the future per capita costs are $550,000. And if we combine the costs of idle workers and capital during the downturn and the harm done to the US economy’s future growth path, the losses reach 3.5-10 years of total output.

That is a higher share of America’s productive capabilities than the Great Depression subtracted – and the US economy is 16 times larger than it was in 1928 (5.5 times larger in per capita terms). So, unless something – and it will need to be something major – returns the US to its pre-2008 growth trajectory, future economic historians will not regard the Great Depression as the worst business-cycle disaster of the industrial age. It is we who are living in their worst case.

One would think that such a macroeconomic disaster – one that robs the average American family of four of $36,000 per year in useful goods and services, and that threatens to keep Americans poorer than they might have been for decades, if not longer – would focus policymakers’ minds. One would think that America’s leaders would be clambering to formulate policies aimed at returning the economy to its pre-2008 growth path: putting people back to work, cleaning up underwater mortgages, restoring financial markets’ risk-bearing capacity, and boosting investment.

But no. Part of the reason is that, at the top, there is no crisis. According to the best estimates, the income share of America’s top 10% probably crossed 50% in 2012 for the first time ever, and the 22% income share that went to the top 1% was exceeded only in 2007, 2006, and 1928. The incomes of America’s top 10% are two-thirds higher than those of their counterparts 20 years ago, while the incomes of the top 1% have more than doubled.

Those who fall into the top strata thus regard themselves as doing well in the current US economy. And indeed they are. Only those who spend more time talking to competent macroeconomists than is healthy know that they could be doing even better if the economy were rebalanced at full employment. So the absence of distress among America’s top 10% and its top 1% – and hence political pressure for measures to return the economy to its pre-2008 growth path – is understandable.

But, for everyone else – roughly 90% of the US population – there has been no jump in income share relative to ten or 20 years ago to offset what now looks to be a permanent lost decade. On the contrary, the bottom 90% has continued to lose ground.

When income inequality began to rise in the 1980’s and 1990’s, those of us who cut our teeth on the long march of North Atlantic history expected to see a political reaction. Democratic politics, we thought, would check the rising power of a largely parasitic economic over-class, especially if its influence caused governments to fail to live up to their commitments to provide full employment with increasing – and increasingly shared – prosperity.

After all, in early-nineteenth-century Britain, growing inequality caused by the Industrial Revolution gave rise to movements for government regulation in the interests of the middle and working classes, and for a rebalancing of real incomes away from rich landlords. Similarly, the Great Depression produced enormous political pressure for reform and change (often for destructive and dangerous change, to be sure, but pressure nonetheless).

Why can’t America launch similar movements today? To the extent that this has become a valid question, most Americans should be as worried today about the quality of their democracy as they are about the inequality of their incomes.

Read more from "Unequal at Any Speed?"

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  1. CommentedHugh McGuire

    When Americans fought for economic equality and participation during the rise of unions in the late nineteenth century, they were met by brutality from both the industrial owners and the state governments. We can look at the history of the Whiskey Rebellion in the late 1700s to see the extent to which our government will use force to suppress dissent from the American people. So, it is not surprising to me that Americans are as doscile as they are. This country was founded by the rich for the rich, and wite working class males were not given the right to vote for the first 40 years or so. This country is much more plutocratic and authoritarian than most Americans believe. What Americans think of as their history and values are mostly myth. Some are industrious and lucky and grow and succeed, but for the poeple as a whole, thee is no assurance of a minimum standard of living.

  2. CommentedJames Gibbons

    After the Fear of'08, the complacency has more to do with survival than any advancement or retraction in economic status, yet I whole heartedly agree that this established inequality seeps into every facet of life, e.g. heath care, education, and even the psychological welfare of a nation. Capitalism is innately structured, like a run away train, to create a flow of capital flow towards the rich and as an old farmer would say, "There ain't nothing you can do about it.".

  3. CommentedJoshua Ioji Konov

    The moving and outsourcing of industrial production by the transnationals in a globalizing world with high productivity has left many unemployed and underemployed while the big investors got more wealth than ever... the Inequality is a product of these new developments...

  4. CommentedSanford Russell

    The problem of wealth and income inequality - and it is a real problema - may have moe to do with politics than economics. Here's a simple idea:
    Look, this is how to save the country. No more campaigns for Congress. Serving in the Senate as well as the House becomes an obligation. Every – every - mentally and physically fit person, perhaps 21 and over, registers for the Congressional draft. When new members are needed replacements names are drawn from a hat. During their term in office all members reside in the same apartment building, newly constructed and located as near to the House and Senate chambers as practicable.

    This is just a sketch, certainly. It needs fleshing out.

    Won’t work? Crazy, stupid idea? No. It could work. It might turn out to be the smartest move toward democratic self-government ever.

    Consider the questions I’ve posited below and then decide whether or not I'm serious about choosing legislators by lot. You might also click on this Internet site for an eye-opener concerning the make-up of today’s House of Representatives and what it might look like if it truly represented the nation’s voting population:

    http://www.huffingtonpost.com/2013/01/03/congress-diversity-113-members-sworn-in_n_2404848.html
    Here are some questions you might consider:
    Q. How many African Americans have a seat in Congress? Choosing legislators by lot might change that
    Q. How many sightless people sit in Congress? Choosing legislators by lot might change that.
    Q. Why aren’t there more women in both the Senate and the House? Choosing legislators by lot might change that.
    Q. Why do legislators spend more time raising campaign money than legislating? Choosing legislators by lot might change that.
    Q. Why do the rich, the PAC’s and Wall Street have so much influence in Congress? Choosing legislators by lot might change that.
    Q. How many physically handicapped sit in Congress? Choosing legislators by lot might change that.
    Q. How many union members sit in Congress? Choosing legislators by lot might change that.
    Q. How many American Indians sit in Congress? Choosing legislators by lot might change that.
    Well, I suspect you can add to the list but this one might suffice to convince at least a few Syndicate readers that a lottery would be far more democratic than the flawed system now in place. You might say that people have a right to choose their representatives through the ballot. But just ask yourself, who chooses your legislators under the present corrupt system? I’d say that the wealthy and the powerful (with a lot of help from the ignorant, uninformed public) are the ones who put the corrupt time servers in office under the present “democratic” system. It’s time for a change - real change, not the Obama sham.

  5. CommentedTom Laney

    Here's a good commentary on the issue of inequality. Definitely worth reading.

    http://www.forbes.com/sites/harrybinswanger/2014/01/07/president-obama-stop-damning-the-achievers-for-their-virtues/

    1. CommentedRogelio Villajos

      Politicians need the money of 10% to be re-elected. You cannot to let the President charge empty, therefore the 10% will keep driving
      the economic policy.

  6. CommentedPierluigi Molajoni

    I'd like to take issue first with using 2007 as a benchmark for calculating a shortfall in income per capita. Frankly the calculations and the discussion whether we are living through the worse economic experience or the second worse seems a total waste of time. Then I will take issue that politicians are not doing enough to put people back to work because at the top there's no crisis for after all politicians need to be elected by everybody, not only the top 10%. On the other hand increasing inequality is a real problem, Delong is not the first to point this out. On the whole this is a poor article.

  7. CommentedTom Paine

    This is not an economic piece. It's a call to take money from one group of people to give it to another group of people. I wonder if the esteemed professor would like to give up his generous pension as some may considered it/him a "parasite" on the struggling California taxpayer.
    I am constantly amazed at those who say "no" if you ask them the question, "would you go to your neighbor who makes more than you and ask him/her to give you money?" On the other hand, they seem perfectly fine w/ having the government do their bidding.
    Why this guy has a spot on Project Syndicate is the real question?

    1. CommentedMK Anon

      Tom: how are wages/income and wealth determined? By a system. So it is at the system level that income and wealth distribution issues should be decided.
      Most wages and income are the result of decision at the system level. For example, If the doctor earns a lot of money, it's not only because he studied more or works harder, it's because he has legal monopol over prescriptions and the system of insurance (either you are in and they charge whaterver they want, or you out and you don't have access). But this is also true for many many goods. Copyrights and patents are also a form of institution - on that made bill gate.
      It's not about taking anyone's money: it's about saying that the market alone, especially with all the laws that are made to ensure the top 10%'s rents, doesn't bring a 'fait' society. If the gap widens too much, then you could fear that the poeple won't ask their neighbours: they will take what they want.. as happened in the french revolution, at a time when blood and birth determined your whole life: the peasants 'took' the property of their lords, and shorten them by one head in that process.

    2. CommentedMiguel de Arriba

      Los que es increíble es que a estas alturas los neo-liberales todavía tengan la poca vergüenza de decir algo, tras haber condenado a la pobreza a millones de seres humanos.

  8. CommentedD. V. Gendre

    One could redistribute todays wealth equal through all citizens. A few years from now on inequality would start to rise again. And soon they will be formed again a top rich 10% and a bottom 90% of poor. But income inequality is not the problem since this is a relative size and I do not think that the top 10% steal money from the "poor" (as this article might imply). But a decrease of wealth, which is not the same, is todays problem for American and Western European middle classes. On a global scale, wealth has increased in the past decades. I remember two decades ago politicians started to force the so-called service society (supported by some "intelligent" economists) and leaving the so-called industrial society behind them. They claimed that this is the natural evolution in economics. They thought that everyone should only work behind a desk and using his brain power for so-called high added value jobs and undeveloped countries should produce their needed consumer goods. So they were sacrificing the old fashioned industrial society to promote the new one. None of these highly respected politicians and economists thought about that probably not everyone has the ability to work with his brain power in the service sector. They were all blinded by the illusion that the high added value jobs would create much more tax revenues. So industrial work was outsourced (manly to China) and now we have a skilled worker shortage and at the very same time high unemployment for "unskilled" workforce. Something never seen before in economic history. If the industrial sector would be still alive people would have plenty of jobs, since every time the goods sector is rationalizing it means that the industrial sector gets new demand to construct and build all the needed machines, automates, robots and so forth.

    1. CommentedMiguel de Arriba

      La globalización ha sido el caballo de Troya usado por las grandes empresas para "deslocalizarse" industrial y financieramente hablando; de este modo han reducido los costos laborales y han reducido el pago de impuestos.
      Lo curioso es que no quieren contratar ciudadanos norteamericanos ni europeos para trabajar, pero sí quieren contar con ellos como compradores (por ejemplo, camisas con costo de un dolar vendidas a 80 dólares); tampoco quieren contribuir con sus países de origen pagando impuestos, pero si tienen problemas sí reclaman su protección (Apple tributa en Irlanda en lugar de hacerlo en los EEUU).
      El sistema que han implantado para aumentar de forma desproporcionada sus beneficios no es sostenible en el largo plazo pues no se puede convertir a China en la fábrica del mundo para vender en países llenos de desempleados.

  9. CommentedJohn D

    I generally respect Professor Delong's work and opinions, but he greatly devalues his argument when he claims that higher earning Americans are "a largely parasitic economic over-class." Should a serious Economist be talking this way? Most high-earners are highly productive, hard working individuals. It is absurd and very insulting to assume they should be regarded as "parasitic". And contrary to Mr. Delong's presumed consensus on inequality, there is a lot of other research showing that inequality has only increased moderately, if at all in the last 40 years. So let's just rush into Democrats' arms so they can make America an equality paradise like New York
    City or San Francisco.

    1. CommentedD. V. Gendre

      Dear Moe, it is a fallacy that wages are only a matter of capacity as you do imply. Of course no one can work 500 times harder than the other one. But not everyone studies several years at university. Not everyone is able and capable to run a multi-billion $ corporation with thousands of workers. And then there is supply and demand. Not everyone is willing to work 14 or more hours a day. Not everyone can handle such a hugh responsibility. The preceding factors show that wage is more than just a matter of capacity. More so in a globalized world. Unfortunately the truth is that the world will probably never run out of unskilled and uneducated people and they are all competing for the same jobs, unlike most CEO's of multi-billion $ companies.

    2. CommentedJose araujo

      I think Delong was talking about Rentiers, both landand capital owners that expect a rent without doing nothing,just because they hold a resource they are entitled to compensation.

      Note that rentiers demand rent indiferent to the demand/supply of the resource. Land was never scarced and capital is abundant right now,yet we are paying high rents for this resources.

    3. CommentedMoe Tootoonian

      It is ridiculous, that some would call those CEO (CFO, etc.) that make 500 times more that lowest income people in their corporations hard workers. Nobody can be 500 harder than the others.

  10. CommentedJose araujo

    Great article, we could add that the loss income due to increased inequality is higher then unemployment and loss of production.

    and yet the class struggles have ended...

  11. CommentedBartley Bryt

    "But, for everyone else – roughly 90% of the US population – there has been no jump in income share relative to ten or 20 years ago .."

    Mr.Delong is blinded by his biases as reflected in the quote above. His words reflect the politics of envy, rather than a focus on improving the circumstances for those who are for the moment less fortunate. There are risks in economic inequality for sure. We are more likely to reduce those risks if we focus on long term policies and incentives that reward success fairly. Focusing on envy not only reduces the likelihood of our deveping such a system of incentives, but inadvertenly perperpetuates the problem by artificially picking which success to protect and which to penalize.

  12. Commentedkrushi reddy

    In a globalized world, it is unlikely that the inequality would come down, the top 1 or 10% continue to invest in one country or the other, had they been limited to one country, consumption being limited due to stabilized populations, there is little scope for further investments and returns now that the economies are integrated the top layer move to other countries. Like they are investing in BRICs they might invest in Africa at a later point and it is unlikely that they cannot make more money. And the domestic policies are however subject to the blackbox and will benefit the top layer.
    Only way would be ensure redistribution, but which can be through highwr capital gains, wealth taxes public investments, education etc. This even though is not easy to achieve the nations should try to go ahead with such to ensure equality.

  13. CommentedJ. Payne

    The answer is not economic, but social and cultural. Many American still believe in the "American Dream." Americans believe their children can still become a member of the "1%" or at least a memeber of the top 10%. When the middle and lower classes realize the American dream for no longer exists there will be social change and redistribution of wealth in America.

  14. CommentedKaare Fog

    DeLong writes that when income inequality began to rise from the 1980s onwards, he would expect to see a political reaction from the relatively poor. Why has that not happened?
    My response to this is that American politics to an ever greater degree is dependent on money donations. You have no chance to be elected unless somebody rich gives you a lot of money to finance your campaign. That is, everyone who is actually elected, is deeply dependent on rich people. This ensures that all political decisions will be specifically to the advantage of the richest. That is, the USA is not actually a democracy, i.e. a system where the ordinary man decides. It is rather a `monetocracy´, where the money decides.
    We can therefore be sure that for many years to come, the rich will be ever richer, and the inequality will ultimately rise to unbearable levels.

  15. CommentedFaruk Timuroglu

    In the globalizing economy of today, growing inequality is a global problem that cannot be solved in national level. Middle and working classes need to globalize as much as the top ε % without borders to have the lever to force a solution, which seems improbable as long as there are too many cheap labor and other resources depots around the world.

  16. CommentedAvraam Dectis

    .
    You need a policy that does all of the thing Dr. DeLong wants and also appeals to the top 10%.

    The only policy that does that would involve going to bond financing of the government.

    That means national taxes would be eliminated, the government would be funded almost exclusively through floated bonds paid off at maturity through QE type operations. Inflation would be controlled through interest rates and spending restraint.

    The result would be :

    1) Massive public approval because all workers would have more money.
    2) Far greater demand as that additional money was spent.
    3) Far less spending restraint by the government since all money was borrowed.
    4) A significant risk of far higher interest rates if the economy overheated.
    5) Massive reduction of unproductive activities associated with tax collection and avoidance.

    Our economy today, by relying on money taken from citizens for funding, is still relying on old fashioned gold standard principles. It needs to be modernized, much like old fashioned combustion engines adopted new technologies for greater performance.

    Avraam Jack Dectis

    1. CommentedAvraam Dectis

      .
      Additionally:

      Other methods could be employed to control inflation.

      Bank reserve requirements can be raised, stock margin allowances can be lowered. Other similar measures can constrain an overheating economy.

      Federal taxes are an obsolete mechanism.
      .

  17. Portrait of Keith Roberts

    CommentedKeith Roberts

    A review of Antonia Fraser's new book about the passage of England's Great Reform in 1832 suggests some important differences. The reform was bitterly opposed by the Tories, who controlled both Commons and Lords, at a time when most members were not democratically elected. Yet it did pass. Evidently eruptions of violence and rage throughout the countryside, and especially in Bristol, were largely responsible for frightening the conservatives into agreements. Moreover, the reforms were exceedingly modest. Today, no such popular movement is easily imaginable in the US given the erosion of unions and other effective organizations of those most injured by current inequalities, and any eruption of violence would be easily and brutally suppressed.

  18. CommentedKarl Vischer

    Good article. What de Long is, in effect saying (I think) is that while MEAN real GDP per capita is back to its former peak level, MEDIAN real per capita GDP is below the peak (and probably all income quintiles below 90% for that matter) and may even be still dropping due to the inequality skew. If our statistics were better we would notice these things better. I agree with many other posters about the growing friction of energy and environmental constraints (and maybe diminishing resource returns generally) slowing growth, and that's a good thing. Indeed, a point will be reached when even growth for the top 1% will start slowing or decline. We may have reached "peak stuff". Trying to force more of this kind of growth is a prescription for disaster.

  19. CommentedG. A. Pakela

    Inequality is a phenomena that Americans embrace. Individuals are constantly trying to separate themselves from the pack, whether that be in sports, academics, or any other activity one can mention. If this is a characteristic of our society, is it any wonder that the competition to gain recognition in any given field of activity becomes reflected in how much money they earn? Is the rest of society worse off if Lady Gaga or a baseball player for the NY Yankees earns tens or even hundreds of millions of dollars? If academics want to advocate more equality, why don't they press for their universities to admit students on the basis of a lottery instead of the highly selective criteria that determines who gets in?

  20. CommentedJason Gower

    Interesting article. Perhaps there are a few things going on here.

    One, the developed world (above all the United States), post WWII generations have only known steady growth that, in the case of the US, has made the country the most prosperous nation in history, in aggregate shifting the living standard of all levels of society upward. At the same time, the extreme capitalist system that has enabled this massive growth increasingly shows its negative side that one inevitably should have expected. However, as inequality increases (there is always somebody with more and thus the continuous drive of the 10%) so too has the size and pervasiveness of government. This is not a judgement of big or small government, only an observation that in the U.S. special interests control government, its policies and ultimately the social climate of the population; this is institutionalized. This phenomenon has only increased with technology and the onslaught of advertising as mass media supports the hyper-capitalist mentality that spurs yet more growth (primarily through zero return consumption) and certainly the entrepreneurial spirit in the U.S., but also comes with some ugly consequences. The American form of capitalism is a package deal: what has made the nation so prosperous has also led to the inequality, etc...it is inherent in the American mentality.

    Putting it all together, the further you move away from the 1% the less political power and political efficacy you will find. The very people that, in theory, should be storming Washington and their local legislatures, through the aforementioned system, largely do not have access to the means to better themselves (quality education). While part of the problem is the complacency arising from the relative living standard in comparison to previous generations, through generations a degree of acceptance (or perhaps fatigue) has come into play. This means acceptance of the fact that the "system" and the numbers are stacked against you in some segments of the population. As the complexity of relationships that tie government to big business are ever increasing, it becomes even easier to envision the lower classes of society accepting their position and withdrawing from politics completely, IF they at the bare minimum have access to the basic necessities of life.

    With mobilization easier than ever (see Arab Spring), however, a key test will come in the next several decades as massive debt (and other unfunded liabilities) at all levels of government in the U.S. will require a serious rethinking of budgets. When this happens, and if certain basic programs/pensions/etc. are cut for the 90% then one should expect that the question of this article will be answered. Basic survival could be the impetus for the larger population to make the connection between the rising debt levels over the past several decades and their more or less regressive standard of living (i.e. “somebody benefitted and it wasn’t me”).

  21. CommentedDaryl stevens

    The real issue in the world is demand, not production.
    Since the 1950's, the US has been a consistent demand provider to the world economy. Many countries have followed the Hamiltonian Imperative, or the Japanese or Asian Development model, recently, some can notice the Flying Geese Model of Development, in which Japan offshored its production to SEA, after the rise of NIE's. Since the 1977, inequality in the US has been rising. Since the 1980's, there has been a changing debt profile throughout the developing world. With the changing debt profile we also saw the eventual fall of the Soviet Union, and the greatest period of economic growth, and demographic change, in history, in so far as standards of living. It is demand that provides the rationale for investment and industrialization. Yet, some advanced countries were reluctant to switch to being demand providers as the US. With many seeking to industrialize at the same time, and greater participation in systems institutions, and with the peace dividend, and with the advance of technology, and the internet, great changes converged, as globally, people committed more and more to development and industrialization. Globally, across all measures, we saw sky-rocketing trends; portfolio flows, debt (foreign and domestic globally), trade, imports, exports, commodity prices, asset valuations, and many things went full stop. Coordinated action stemmed the descent, mixed policy activities globally, slowed the recovery; some seeking expansion (obviously, during a deflationary period), and some seeking austerity. Such, caused the recovery to lengthen, and growth to stall.

    The stories of the global middle class, have never been what people in the advanced countries think. 10 USD a day, is well, nothing. But even that high level is barely existent outside the OECD (even for a few within it). So, developing countries have recently started raising wages (VN, China, etc...) because demand has collapsed and building more infrastructure, and adding more capacity in a demand deficient world is a waste of resources. Now inequality in the US has advanced, and costs have moderated, the so-called China price, do to many more participants seeking idnustrialization and because of IT. IT has collapsed the cost of doing business, destroyed business models and former cash cows and depressed wages.

    Just as in China, although there is completely exacerbated, inequality, like political dogma, clothing styles, music, and so many other things will need to switch in another direction. China went way to far in the Asset inflation component that always accompanies the Asian Development Model, and the US has gone far, toward provision of global common goods, in providing demand to indsutrializing nations. Yet, this will need reverse. Elites still need a strong base below them to rationalize the value of their assets and others globally will need to raise the wages of their people to seek more demand domestically. there is way to much capacity in the world than is necessary for consumer demand, there is way to much investment at present that only exacerbates that situation. It is reversing as we speak.

    Grater local resiliency, rising wages (although not tho the degree imagined during the 2000's re Global Middle Class) globally, and return of manufacturing, under conditions of advancing technology, customization, andsimilar is on the near, present, horizon.

  22. CommentedStephen Stanley

    The short answer is mathematical illiteracy. See, we are so bad at math that few of us realize the likelihood of rising above inequality is so low that few of us will do it. We're charmed by the rags-to-riches anecdotes, the stories that stick in our non-mathematical brains, rather than the reality: Americans are unlikely to change their social and economic standing in their lifetimes.

  23. CommentedAdam Smith

    We have not had true economic growth in the US since 1980. Debt growth has outpaced GDP growth every year for over 30 years. I don't see this as good, or sustainable. It might "feel" good as you are able to continue to consume while getting by with decreased production but it eventually catches up to you, and that is where we are today.
    Another reason that wealth has gotten concentrated is that our businesses are more concentrated. Home Depot, Wal Mart, McDonalds, etc have replaced small businesses that once existed in every town. The money used to be spread around to hundreds of thousands of small business owners who have disappeared, replaced by our mega corps.

  24. CommentedwasteBodyInRottenWorld getRealNews

    Bunch load of lies. Has GDP kept up with the monetary inflation over 30 years ? I don't think so. As technology advances natural tendency is for prices to fall for any economy. If anything over last 3 decades, the American consumer should have witnessed a surge in purchasing power. The reality is because of monetary inflation purchasing power has declined massively. Were they sitting and discussing 2% inflation when they built electric bulbs or when industrial revolution happened ? I don't think so. So when did this 2% inflation become a fancy ? The govt needs to reduce its debt.

  25. CommentedGreg Vicar

    Easy. the energy for movements of the sort DeLong is looking for comes from the Left, which centrists like DeLong vituperate at every opportunity. A common Centrist lie is that "The extremes touch.", that the far Left merges into the far Right. This proposition was tested on 23 March 1933 at the Kroll Opera House, Berlin. There, every element of German political life, except the Left, that is, the far Right, the Center-Right, the Center (literally) voted to a man to give Chancellor Adolph Hitler the power to rule by decree. It carried 441-94, the 94 votes coming from the Social Democrats. The Communists didn't vote because the KPD had already been banned and its delegates were all in concentration camps, in hiding, or in exile.

    So we see that the Centrists hate the Left far more than they fear even the most radical, violent Right, and that accounts for the lack of a reaction to our continual drift Right since 1980.

  26. CommentedRob Lewis

    Missed a key point here: the enjoyment to be had from wealth is largely relative: it's more fun being rich if everybody else is poor. So even if the wealthy do better absolutely in a thriving economy, they don't feel as rich. The booming stock market coupled with high unemployment and stagnant wages are a made-in-heaven scenario for them.

  27. CommentedEdward Ponderer

    Many important fact and questions offered here, but I think that three major points are missed that put that frame those facts and may perhaps lead to answers of some of those questions. All involve human ego and human relations.

    1 - As there is a light-speed limit on velocity, so there is a natural limit on growth potential and need save artifice. We produce far more than we need, most is totally unnecessary, the duplicate products and the redoubling of media campaigns and lawyers, services with little variance, with purposeful introduction of premature obsolescence. The appearance of lack is illusory for the most part, and where real it is a reflection of inefficiency of distribution and human relations.

    2 - Communism thought that it could control human ego with a gun, and forgot the problem of "who guards the guardians." The resulting horror of 20th Century communism with its living nightmare legends today (of which North Korea is the "poster child"), has given a lot of leeway to the free enterprise system as at least, the lesser of two evils. However, the gap has been rapidly closing into the 21st Century as methods of media mass psychology and powerful resources in the global economy, have given great new opportunities for exploitation in the form no that the clever, industrious, and opportune do best but we all gain, but rather they do super well at everyone else's expense. by being the only profit takers in risks imposed upon everyone. Its not just win-win to win-lose, it win-lose_BIG, more and more often, everything. This is destroying the fabric of society at an accelerating pace, but because of its power, there is a danger of it going to critical with a sudden chaos-producing reaction from the general public.

    3 - That it comes down to ego and not economic theory brings out the dark, truly insane side of the whole manner. It is not how well we do, but relatively so. I would rather be Middle Class, and everyone else poor, than that we all be rich. It is as the legendary story, approximately that in passing, Napoleon overheard a storekeeper cursing his competitor across the road for ruining his business. Napoleon approached and offered to give the man anything--any wealth or favor that he desired, but on condition that his competitor would receive double this gift. On hearing the condition, the shopkeeper requested that one of his eye be removed. While generally not this extreme, deep down we all know what it is to harbor such dark thoughts to some extent--and subconsciously it runs much deeper. A lot of the reason that we don't build a better world for everyone, is that if not for us alone to rise above, we are just not interested.

    It is this type of egoism that is our worst enemy, economic and otherwise. Without deep training in mutual responsible relationship building, and communal-to-global integration, no amount of economic planning will save us.

    The skyscrapers of modern civilization are just getting too high to continue building them of sand...

  28. CommentedWalter Gingery

    Laura Tyson makes an interesting point in her neighboring article: the minimum wage, if corrected for inflation and historic rates of productivity increases, would today be $25 /hr. Two striking inferences: (1) the wages of most OTHER jobs would then be in the range of $30 - $50. (2) that they are NOT is because the gains due to increased productivity and adjustments for inflation have been siphoned off and appropriated by the highest paid: the 10%, and even more by the 1%. The policy implications are clear: more taxes on the wealthy and on corporations, and more redistributive government policies.

  29. CommentedJ-som O-verb

    This article makes a common, superficial mistake, in assuming that the rate of growth of "the good old days" was always based on something which can be concretely recreated. The "growth" of the 80's, 90's, and 00's increasingly depended on non-productive consumption. Such "growth" is little more than a cannibalization of future real growth.

    The writer asserts that democracy can fix inequality, as he fails to see the underlying weakness of non-productive consumption. No democracy on earth can make a people "producers." No single constructive approach can teach a fat, consumptive generation to labor productively. This generation has already lost the keys to the kingdom...in order to "eat, drink, and be merry."

    1. CommentedWalter Gingery

      A very curious farrago of sense and nonsense. In a world of rapid technological change and globalization, of course it makes sense to say that the economic basis of prosperity cannot be simply taken for granted, but must be reinvented again and again. On the other hand, to lay the blame on the moral failure of an entire people or generation is nonsense, especially considering the well established fact that Americans work more hours per year than the people of any other industrialized country, including the famously industrious Japanese.

  30. CommentedJoshua Soffer

    Why can’t America launch similar movements today? The movements of the past that Professor Long mentions took place a a time when government assumed a much smaller role in the lives of the populace. By now, much of what was missing 80 years ago has been put into place. That's not to say that a long list of desired progressive goals wouldn't be helpful at this point(higher minimum wage, mortgage relief, school tuition and student loan assistance, tax reform, etc.). But I think most people consider such changes incremental and not likely to have a dramatic effect on the plight of the 90%. For this reason, what there is of organized protest can't get beyond the inchoate pleas of Occupy Wall St or the picketing of fast food chains. Whatever changes eventually lead to a resurgence of the middle class will likely proceed along the lines of a quiet evolution rather than revolution.

  31. CommentedProcyon Mukherjee

    The case is not strange, it is only to be expected, when monetary easing is allowed to prop up prices of assets to create wealth effects, is it not normal to expect that the gains would be disproportionate? The entire premise on which the current monetary accommodation is resting is based on "supply of money meeting its eventual demand" where channelizing it to a more equitable distribution is an impossibility. When we cheer the roaring equity markets, we cheer this policy premise, isn't it?

  32. Commentedrobert Lapsley

    Can The Capitalist Save The World?

    In 2014 three big E’s (Ecology, Energy, Economy) their dynamic will continue building pressures for change. Behind that obvious headline is a pernicious myth and elixir our leaders continue to sell us, our captains of industry sell us; hell, we sell it to ourselves, we love it! Satisfying our common base hedonic aims is worthy of honor. We obey our base biology, chasing yum and shunning yuck. It is the story used to rationalize our consumer capitalism. Our father Adam Smith rationalized self-interest and competition leads to economic prosperity. The unintended consequence is today a crazy race and competition in which the most common and popular measure of success seems to be in the extent one can influence and control material wealth. Those relatively few successful and prosperous, continue to compete amongst themselves for more. They write the rules of engagement used to compete for the limited resource base on which we all depend.
    Our economic rules for engagement promote self and consumption at the expense of our natural ecology. When I say “self”, I mean to include not just individuals, but groups large and small, as one against another. Unfortunately when we apply these rules we effectively exercise moral blindness or indifference, not just to the many marginalized or the many more outside our economy, but more, to the critical biosphere. What if we change the rules and care for the planet? Promoting such a principle could help steer ethics and social norms in a direction more in line with our natural ecology.
    Capitalists embracing and internalizing this first principle would help to bend the arc of moral evolution away from our selfish ethos and away from our pernicious norms. Are we not misguided in principle if and when we focus on humans and our clever constructs to the exclusion of the larger planetary systems? We are after all embedded in the much larger biosphere. And few deny the mounting evidence that our growing numbers effect changes on that scale. If this ethic were to be adopted by our capitalist culture, this new capitalist might just save the world. I wonder how our economy might work when the capitalist is rewarded and revered, to the extent his novel relationships and exchanges profit the biosphere; penalized and despised when his practices degrade the biosphere? Yes, naive I know … laws already on the books, enforcement, human nature; best laid schemes, yada, yada.
    But by now it should be obvious we better serve our continued survival when we protect and defend our vital ties to the ecosphere, to planet Earth. Some argue our first principle should be a flourishing humanity; it is ironic, our means and methods threaten our continued survival. Only our hubris holds dominion over nature. To think otherwise, leads inevitably to our nemesis.
    Still today, most disagree and defend economic principles of growth and competition. Resistance to needed change dominates today’s popular culture. Even our elected leaders resist effecting needed change. With each Wall Street corruption exposed, with a growing gap between the haves and the have-nots, with a growing population living in poverty, it is getting easier to convince ourselves something must change.
    And we are changing. As pressures build we plan for the next Sandy super-storm, rising sea levels, and the next Sandy Hook shooting. Still, few are planning for a new ethic. As a boy I remember it was common to see the sides of the highways strewn with bags of trash; now blatant littering is unacceptable. I feel it’s reasonable to expect the same turn away from selfish profit motives, and temporary titillations, and toward profiting the biosphere. It will take some time; the big idea wheel turns slowly.
    Serving the planet above all else is a hard sale to close. But it shouldn’t be too hard. We create the social world. The constraints and consequent selection pressures within it… they are ours to amend. We have managed to rear inspired volunteers who die in the service of “national interests”. It is not a stretch to think that we could change the rules of engagement and select for those who serve planet Earth’s biosphere and oppose anthropocentric profiteers. Again, if adopted by our capitalist culture, these new capitalist super heroes might just save the world.
    But first, there is an underlying and insidious phenomenon at play we must square. Humans are subject to the tragedy of the commons. A formidable force opposing needed change; it helps explain why we kick the can down the road, why we avoid mitigating climate change in any meaningful way. It highlights why we avoid economic reform, and resist moving social norms toward something more than sustainable, something regenerative.
    We understand that our economic incentives promote consumption, hasten the depletion of our common resources, and pollute, all contributing to the accelerated degradation of our vital ties to the natural ecology. These practices are contrary to humanity’s long-term best interests. Still, generally, people are reluctant to accept short-term pain for long-term gain. People will not easily give up what security they’ve worked hard to achieve when they have less relative to those surrounding them, when they feel unjustly disadvantaged by a “rigged system”. We must accept as fait accompli that citizens of the developed world who oppose the current economic zeitgeist and refuse to join the minions will suffer the pains of ostracism and a relative poverty. This dynamic is back-ass-ward.
    Depending on one’s skill set, one might squat some piece of land and practice permaculture, and we need them. But as things stand, even when one opts out of the economy, someone else will eagerly jump at the opportunity to take their spot, access resources, and enjoy real material gains earned exploiting our increasingly scarce common resources.
    It’s a crazy mixed up world that socially rewards one and all for the wholesale exploitation of natural resources. And we must admit this economic incentive to exploit resources today for material advantage is a problem for the future. Our economy competes for resources. We compete against each other for resources. When we do so, we are also competing against other systems natural and spiritual for the ethical principles that might better guide our way forward. We turn asunder deep-rooted natural systems when we compete. Wielding economic conventions, we press individuals, firms, cities, states and nations to conform and contribute to economic growth. Economic incentives move us to exploit what precious resources we have in order to gain some advantage now, and do so at the expense of our future generations.
    Some resist, but like myself, more acquiesce in order to provide for their family, to put food on their table and a roof over their heads. Even knowing business as usual undermines our future generation’s well being, knowing our global order emerges from those local rules we engage today, knowing current practices undermine the well being of the biosphere, even knowing all of this, I don’t stop; we don’t stop; we move closer to ecocide, and I, like most of us, contribute with impunity.
    So, what then should we expect of ourselves in 2014 as the three big E’s exert greater pressures on our economy? Will the capitalist and consumer heed Natural systems warning and humble themselves? Will we seriously consider a new first principle of care for the planet? Will we better serve our interests for survival by sacrificing personal interests in the defense and support of our vital ecosphere? The evidence is mounting; the pressures are building, now more than ever… We ought consider as a rational first step forward, extending our notion of kin and community to include a healthy biosphere, and adopt as first principle the flourishing of a rich and deep ecology supporting all of us.
    I am optimistic that in time we will come to understand and approve of our place within the vast ecosphere, enhance its vitality, regenerate vital ties, complement and nurture the planet’s biosphere and thus our own. My new year’s resolution is to reach out for examples of entrepreneurs succeeding while strengthening our natural ecology and the Earths biosphere, and spread those examples far as I can.
    But now, returning to Earth, I expect, unless we are struck by some ecological 9/11, in 2014 most will disregard the need for a new ethos.
    And when they wake the morrow morning
    Remember them the Fate’s warning
    To Eurydice singing,
    Anais Mitchell’s ringing:
    “Gone, I’m Gone”

    “You can have your principles
    When you have your belly full,
    But hunger has a way with you.
    There’s no telling what you’re going to do,
    When the chips are down.”

  33. Commentedyancey simon

    Americans generate their greatest velocity when headed in the wrong direction. Accordingly, their protestations are directed at the poor, the children, the unhealthy, the elderly, and the government instead of the oligarchs who have ceased control of the economic markets and political process for benefit of the 1%. In that regard, Americans could use an Intellectual GPS to define their current economic situation and reveal the cause of their economic slide. Of course, for most Americans to rile against the disadvantaged and oppressed requires no courage while confronting the wealthy and powerful demands fortitude and intelligence that the American public seems to lack.

  34. CommentedRobert Ley

    I suspect that America can't launch similar movements because, though their incomes are flat or even somewhat down, the 'average American family' you refer to can, in 2013, get by rather well compared to their counterpart in 1929 or the early 19th century. While of course they'd like to have that extra $36,000, in contrast to previous times they don't really NEED it. There is effectively too much money out there, and QE only adds to the supply. It might also be worthwhile considering the cost to the global environment if that extra $36,000 were available. Perhaps, taking a bigger view of things, all of us are actually better off this way.

  35. CommentedCarol Maczinsky

    The answer is simple, the United States has no people, it has a population. They are even unable toget consent for healthcare, that is fellow citizens keeping each other alive, simply because they are not a people, no coherent group with a sense of unity.

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