Wealth distribution (or lack thereof)

I’ve been reading Elizabeth Warren’s new book “A Fighting Chance,” and I’m about to start Thomas Piketty’s “Capital in the Twenty-First Century,” so I’m getting a short course on the American financial system and income and wealth inequality.

Ezra Kline at Vox had a pretty good explainer on why income inequality isn’t as serious a problem as wealth inequality:

Then I remembered that back at the beginning of the year, the folks at Bloomberg News pointed out the latest developments in income inequality:

Even those with college degrees are having trouble keeping up …. While they earn more than those with less schooling, they’ve seen no real wage growth in recent years. The median income of men 25 years of age and older with a bachelor’s degree was $56,656 last year, 10 percent less than in 2007 after taking account of inflation, according to Census data.

“It’s very difficult for anyone middle-income and lower,” said Ryan Sekac, 26, a mechanical engineer in Westerly, Rhode Island. “There was a time when it was easier.”

It hard for people in the middle income and lower. But for the wealthy?

In the meantime, record-high stock prices are enriching wealthier Americans, exacerbating polarization and bringing income inequality to the political forefront. Even independent government agencies like the Securities and Exchange Commission and the Federal Reserve have been dragged into the debate. …

The richest 10 percent of Americans earned a larger share of income last year than at any time since 1917, according to Emmanuel Saez, an economist at the University of California at Berkeley. Those in the top one-tenth of income distribution made at least $146,000 in 2012, almost 12 times what those in the bottom tenth made, Census Bureau data show.

And just one more thing for people who are middle class and anti-union to get into their thick skulls:

The decline of unions — 11.3 percent of workers were represented in 2012 compared with 20.1 percent in 1983 — has advantaged bosses at the expense of their employees.

I should have studied economics back in college when I had the chance. There’s so much catching up to do.

Cuckoo for austerity

So what’s happening in world economics?

Steepest drop in German private sector output for three years. Euro crisis leads to survey-record monthly fall in service providers’ business outlook.

Of course, an economist could explain this better, but let’s see:

Germany is the leading voice for an austerity strategy for dealing with Europe’s economic problems. When countries practice austerity, jobs and services are cut. When that happens, citizens have less money to spend. German economic strength is based on product manufacturing. People throughout Europe buy German products. But governments throughout Europe are practicing austerity. With austerity, people don’t have money to buy products (fewer jobs, fewer payouts in social services, higher taxes, less money). When people don’t buy products, German businesses make less money.

So austerity is bad for Germany.

But Germany insists austerity is the way to go.

And now German service providers are experiencing a record fall in their business outlook.

Who could have seen that coming? Cue Paul Krugman:

Basically, it seems that even as the euro approaches a critical juncture, senior German officials are living in Wolkenkuckucksheim — cloud-cuckoo land.

Now, I know the phrase normally refers to a state of naive optimism, not normally something one attributes to German officials. But a broader interpretation would be that of believing, despite all the evidence, that the world is the way you want it to be, and acting on that false belief.

So the man from the finance ministry asserts that the euro crisis was brought on by fiscal irresponsibility, and in particular by “short-termism” — so that the remedy is to focus on long-run fiscal irresponsibility plus structural reform, which he insists has never failed.

All one can say is, My God. You have to be willfully blind not to know that private excess, not public, caused the problems in Spain and Ireland — and nowhere, not even in Greece, did Keynesian stimulus efforts have anything at all to do with the crisis. As for fiscal responsibility plus reform solving the kind of problem we face now — massive real overvaluation with a fixed exchange rate — it would be truer to say that this has never worked.

Is Paul Krugman always right?

If you’ve been paying attention to the escalating battle of words in the economics community …

OK, that was a joke, I know you haven’t.

Paul Krugman, Laureate of the Sveriges Riksban...

Image via Wikipedia

Anyway, there been a really ferocious battle in economics. The anti-Keynesian economic forces on the right have been making elaborate statements on why stimulus spending and government intervention is bad. And pro-Keynesian economists on the left, pretty much led by Paul Krugman, Brad DeLong and Mark Thoma have been shooting down those statements with regularity … and not much subtlety.

Bloomberg Businessweek illustrates the battle in a large chart here focusing on Krugman.

Now the chart is fun to read, just to see all the catty remarks coming from all sides. But it illustrates one of the major problems of American journalism. It doesn’t tell us who is right in the argument. So that doesn’t make it news. It makes it a cheap gimmick.

(For those of us who have been paying attention, Krugman is way ahead.)

Four more (GOP) years?

This is disheartening. It comes from Mark Thoma at Economist’s View, and no one who reads that blog would confuse him for a GOP spokesman. He’s essentially noting that in the course of the Obama presidency, the Republicans have done pretty well in steering the country in their direction, and asks why would they want to screw that up?

So long as Republicans can block more effective policy, and so long as the president acquiesces and doesn’t blame Republicans for obstructionism, etc., Republicans can win this war. That socialist, Keynesian (or is it Kenyan?) president tried it his way, and it failed!

If a Republican takes the presidency, that blame will fall on them. Sure, it’s possible that the economy will take off over the next four years, but more realistically it’s looking like more of the same sluggishness, a slow, agonizing, “are we there yet,” recovery that won’t be helped at all by the deficit reduction that lies ahead (thanks to one of those wonderful compromises by the administration). Who wants to preside over that? Instead, why not put up some weak candidates, very, very weak, and give the win to Obama? He’s already done a lot of their work for them, why not let him take the lead in dismantling social welfare in the name of deficit reduction (e.g. Obama has often cited Social Security as a target).

I realize that Republicans really do want to win, they hate having Obama in power, but from their perspective would it really be so bad if they lost?