US tax rate history - A return to the glory days

[Char. Limit]

Wages are subject to the market forces of supply and demand - unless regulated by Government or locked-in by a union agreement or employment contract. The best way to increase wages for everyone is to reach full employment - where employees are in demand and can name their price. Politicians don't seem to understand this concept - IMO.

In August 24, 2005, an http://money.cnn.com/2005/08/23/news/international/india_outsourcing/index.htm" made about $1.22 per hour. Now, it might have risen since then, but I doubt it's more than doubled. Consider that the federal minimum wage is $7.25 per hour. How can we compete with cheap Indian labor? Answer: By lowering the minimum wage by about 5 dollars per hour.

And that would cripple America, since lowering wages that much would mean a large amount of people just couldn't buy anything, which means that a lot of companies would collapse because there's no one to buy anything from them.

tl;dr we're doomed.

 

[WhoWee]

In August 24, 2005, an http://money.cnn.com/2005/08/23/news/international/india_outsourcing/index.htm" made about $1.22 per hour. Now, it might have risen since then, but I doubt it's more than doubled. Consider that the federal minimum wage is $7.25 per hour. How can we compete with cheap Indian labor? Answer: By lowering the minimum wage by about 5 dollars per hour.

And that would cripple America, since lowering wages that much would mean a large amount of people just couldn't buy anything, which means that a lot of companies would collapse because there's no one to buy anything from them.

tl;dr we're doomed.

While it's true a TM job can be outsourced to India, there are millions of retail/service jobs that can't be exported. As for manufacturing jobs, technology replaces the $1.22 per hour folks - and the machines are monitored and services by higher paid and skilled workers - an "economic sweet spot" (my term) - IMO.

 

[mheslep]

The minimum wage, i.e. government, eliminates the $1.22 per hour folks, not technology.

 

[Char. Limit]

The minimum wage, i.e. government, eliminates the $1.22 per hour folks, not technology.

I think you missed part of my point, which was that a $1.22 per hour wage is simply not sustainable in this economy. I mean, that's essentially $200 a month. Which we all know won't sustain one person even as a bare minimum.

 

[mheslep]

I think you missed part of my point, which was that a $1.22 per hour wage is simply not sustainable in this economy. I mean, that's essentially $200 a month. Which we all know won't sustain one person even as a bare minimum.

Though I once traveled around W. Europe for months on a budget of about $200/month, wages that low are not meant to sustain someone. They're useful to get someone with zero marketable skills in the door, where they better quickly learn some skills, and thus become worth a higher wage. And the price structure is not static. It tends to bend and evolve to accommodate varying incomes. The https://www.amazon.com/dp/080188571X/?tag=pfamazon01-20; that doesn't mean it can't.

 

[SixNein]

No, it won't. Why do so many people think massive, expensive, ever-growing government is the only option?

I don't recall saying anything about the size of government. In fact, I think the imbalance argument would be true for all governments regardless of size. In addition, I don't gauge government by some notion of large or small because I feel that size is according to the economy and global status of a country; instead, I gauge government by efficiency and how well it meets the needs of its people.

I agree with you that government spending on credit is just as bad as (or worse than) government spending from taxation, but what those two bad options have in common is the problem: too much government spending.

The need to raise taxes does not necessary imply that the government is overspending. For example, a great deal of Americans believed that the government should go to war after the sept 11th attacks in order to protect their security. Unfortunately, war is a very expensive endeavour for the government to undertake, and the government had to adjust its finances accordingly. People could have paid taxes immediately, or the government could borrow funds and raise taxes to cover those funds and interest at a future date. The only other option is to forgo those needs regardless of the long term cost.

 

[Al68]

I don't recall saying anything about the size of government...

Sure you did. You said: "...lowering the taxes will introduce a cash flow imbalance, and the government will be forced to provide a portion of its services on credit plus interest." That statement implies a government that spends at least as much as its tax revenues, which for the modern federal government means roughly 18% of GDP in addition to state and local taxation and spending. Your statement falsely claimed that the federal government has no option other than to collect enough revenue to pay for whatever spending it wants, or to obtain credit to do the same. Which means exactly what I said: that such a statement rejects not having such a large government as an option.

The need to raise taxes does not necessary imply that the government is overspending.

I never said anything like that. First, my claim of overspending was based on the amount of spending, roughly 25% of GDP last year by the federal government alone.

Second, I never referred to a need to raise taxes, anyway, because that's the last thing we need. The fact that government spends more than its tax revenues does not imply the need to raise taxes. Given the historical fact that federal tax revenues historically top out at about 19.5 % of GDP regardless of tax rates (even when the top rate was 91%) does imply the need to spend less.

 

[SixNein]

Sure you did. You said: "...lowering the taxes will introduce a cash flow imbalance, and the government will be forced to provide a portion of its services on credit plus interest." That statement implies a government that spends at least as much as its tax revenues, which for the modern federal government means roughly 18% of GDP in addition to state and local taxation and spending. Your statement falsely claimed that the federal government has no option other than to collect enough revenue to pay for whatever spending it wants, or to obtain credit to do the same. Which means exactly what I said: that such a statement rejects not having such a large government as an option.I never said anything like that. First, my claim of overspending was based on the amount of spending, roughly 25% of GDP last year by the federal government alone.

Second, I never referred to a need to raise taxes, anyway, because that's the last thing we need. The fact that government spends more than its tax revenues does not imply the need to raise taxes. Given the historical fact that federal tax revenues historically top out at about 19.5 % of GDP regardless of tax rates (even when the top rate was 91%) does imply the need to spend less.

You are introducing additional and unnecessary information into a very simple system I was trying to create. I left the assumption that spending is frozen before and after tax cuts unstated. If this clears this up for you, great; however, you may also be stuck on the inverse. Assume that taxes are frozen and spending goes up. Does this always lead to a better economy? I think most people can clearly see that this is false, but they seem to have more trouble with the inverse.

 

[Al68]

You are introducing additional and unnecessary information into a very simple system I was trying to create. I left the assumption that spending is frozen before and after tax cuts unstated. If this clears this up for you, great; however, you may also be stuck on the inverse. Assume that taxes are frozen and spending goes up. Does this always lead to a better economy? I think most people can clearly see that this is false, but they seem to have more trouble with the inverse.

None of that was ever unclear. My post was only in response to your claim that lower tax rates "forced" government to run a deficit.

 

[mege]

You are introducing additional and unnecessary information into a very simple system I was trying to create. I left the assumption that spending is frozen before and after tax cuts unstated. If this clears this up for you, great; however, you may also be stuck on the inverse. Assume that taxes are frozen and spending goes up. Does this always lead to a better economy? I think most people can clearly see that this is false, but they seem to have more trouble with the inverse.

Spend less, spend smarter - I think it's much of the same in this debate.

If our total federal spending has always been 18% - what are we spending money on now that we didn't 50 years ago?

Pre-President Johnson, taxes were going towards assets for the country. Roads, dams, NASA (for better or worse), other infrastructure, etc. Now much of the government spending is pigeon holed on little pet projects that only affect a small portion of the electorate - I think that's the ultimate real problem. If the overall tax rate in the country was a consistent 50% and it was all going to public works on projects of a truly national interest: I don't think there would be much backlash. But a small tax where it's going to individuals in redistributive measures (ala entitlement programs)? That's where I have a problem (and I feel many other's do to). Subsidies, permanent poor assistance and special-interest funding is what's driving us in the hole. 50 years ago the federal government wasn't funding several million mouths permanently on welfare, giving rediculous ammounts to minority farmers, billions to ethanol, or 100millions to Planned Parenthood. There's also a good chunk of political groups whom aren't paying taxes now - 501c3 needs to be charitable only. (MoveOn.org and the UAW are not charities... why are treated like one in the tax code?)

 

[Vanadium 50]

And that would cripple America, since lowering wages that much would mean a large amount of people just couldn't buy anything

Why does this follow? http://www.bls.gov/cps/minwage2009.htm", 97% of US workers are paid above the minimum wage. To first order, these people should be completely unaffected. I will concede there is a second order effect - e.g. a job that is presently being done by one person at $10/hr could turn into two jobs at $5/hour. So you would see wages fall and employment rise.

Also, lowering the minimum wage would be deflationary. Deflation has its own problems, to be sure, but one positive in this scenario is that the buying power of this $5/hour will increase.

 

[OmCheeto]

...97% of US workers are paid above the minimum wage.

So the people I pointed out the other day:

23,767,000 filers, or 14.7% if the total filers, had an average income of $5788 , with a negative tax burden of $51.

which by my calculations, came out to about $2.78 per hour for a 40 hour week, working 52 weeks a year, kind of implies the 14.7% of the US population are not working full time.

...

Which is kind of my response to the whole; "Half of America don't pay no tax!" argument.

Either they are really scraping, or they are just a Char-limit kind of person just trying to make enough money to eat while they get through college.

...

Last thought before I go to bed; "Who in America can afford to pay more taxes?"

answer: Rich people.

rich people: = me
not monetarily mind you, I would be on a yacht somewhere if that were the case.

 

[SixNein]

Spend less, spend smarter - I think it's much of the same in this debate.

I would also include tax smarter. In particular, the very high inequality in the nation should be discouraged through taxation. The one real change in America since post WW2 is a return to the gilded age.

 

[Char. Limit]

I would also include tax smarter. In particular, the very high inequality in the nation should be discouraged through taxation.

I disagree. I'm all for letting the wealthy be wealthy. I just think that the income tax is constitutional (it's in the constitution, after all). And for some reason, half of the board thinks that the income tax is unconstitutional.

The one real change in America since post WW2 is a return to the gilded age.

Hardly.

 

[SixNein]

Last thought before I go to bed; "Who in America can afford to pay more taxes?"

answer: Rich people.

Tax the red line...

[PLAIN]http://www.cbpp.org/images/cms//6-25-10inc-f1.jpg

 

[WhoWee]

Tax the red line...

[PLAIN]http://www.cbpp.org/images/cms//6-25-10inc-f1.jpg[/QUOTE]

The American Dream used to be inclusion on the "Red Line" - now it seems to be something less?

Personally speaking, the past 18 months have been horrible - if tax rates increase - I'm going to be less inclined to hire anyone or risk additional capital in the future.

 

[OmCheeto]

Tax the red line...

[PLAIN]http://www.cbpp.org/images/cms//6-25-10inc-f1.jpg[/QUOTE]

Ha ha!

Sorry. I got out of bed to do some business and couldn't help but see what thoughts had come out of the night.

Much of what I see in the people that surround me, is sort of what I would call a "Santa Claus" syndrome; "I'm really poor, but I want to be rich, and I know I will be rich some day. And when I'm rich, I can give my money to people and causes that I think are worthy of my benevolence. So screw this tax stuff. It's double taxation!"

It's quite possible that this is why I never became financially successful in life. I simply do not understand humans.

 

[mege]

Something to note - that graph does NOT indicate that the 'red line' is making more money from their jobs or investments (like some would like you to believe). Their take home is higher, sure, but does not indicate their income pre-tax has gone up. One presumption could be made that they are being taxed less (which I think is more of the case).

The marginal income tax rate for MFJ earnings over 250k in 1980 was 70%. Now it's 1/2 that (the MFJ top bracket in 2010 was 33% for 202k+, 35% for ~360k+).

I forget if I've stated it on this forum, but I'm all in favor of a simplification of the tax code to have two tax rates: under and over poverty (or some multiplier of poverty). Eliminate nearly every tax break, tax credit etc, except for very specific and necessary things that could cause significant double taxation (set a threshold of 1% of income or something). Ultimately, 'filing a tax return' should only be necessary if you have some change in tax circumstances - otherwise doing it automatically via payroll deductions should be fine for most Americans. Just as taxes shouldn't be used for punative purposes towards those whom make a lot of money, they shouldn't be used as rewards for performing certains deeds or tasks (buying a house, having kids, etc).

 

[Al68]

I disagree. I'm all for letting the wealthy be wealthy. I just think that the income tax is constitutional (it's in the constitution, after all). And for some reason, half of the board thinks that the income tax is unconstitutional.

Which half? can you link the posts? I'm a regular PF forum reader, and I don't remember ever seeing a single post saying that.

 

[Al68]

Much of what I see in the people that surround me, is sort of what I would call a "Santa Claus" syndrome; "I'm really poor, but I want to be rich, and I know I will be rich some day. And when I'm rich, I can give my money to people and causes that I think are worthy of my benevolence. So screw this tax stuff. It's double taxation!"

It's quite possible that this is why I never became financially successful in life. I simply do not understand humans.

I have to agree with you for once. You at least don't understand the humans who disagree with you, if you think that "Santa Clause" syndrome is accurate.

 

[Zarqon]

I disagree. I'm all for letting the wealthy be wealthy.

I just don't get this mentality. The cost of letting the wealthy be wealthy is that the poor remain poor, and this creates a general state of inequality between people, which seems clearly sub-optimal. I'm pretty sure the poorest people are the ones most responsible to crimes/social problems, so fixing that/helping them, will benefit the whole country, including the rich.

 

[Al68]

I just don't get this mentality. The cost of letting the wealthy be wealthy is that the poor remain poor, and this creates a general state of inequality between people, which seems clearly sub-optimal.

No, it doesn't create the inequality, it merely allows it. Huge conceptual difference. As far as the "mentality" that allows such a thing, it's identical to the mentality of one who chooses not to steal a candy bar from a kid who has two in order to give it to the kid next door who has none: because theft is wrong. Yes, even theft for the purpose of reducing inequality is wrong. And no, theft doesn't become right instead of wrong just because government is used to do it.

Such a "mentality" is not as difficult to comprehend as you suggest, http://bastiat.org/en/the_law.html" written by Fredric Bastiat in 1850 explains it quite clearly. And it's a short read and free online.

 

[mege]

I just don't get this mentality. The cost of letting the wealthy be wealthy is that the poor remain poor, and this creates a general state of inequality between people, which seems clearly sub-optimal. I'm pretty sure the poorest people are the ones most responsible to crimes/social problems, so fixing that/helping them, will benefit the whole country, including the rich.

To the contrary - how can one justify taxing the wealthy more than their share? This country already has a percentage based tax (not an absolute tax). That means that the wealthy are putting their share in the pot. Tax debates often forget that the government could just send everyone a $5,000 bill each year regardless of income. A percentage based tax is already slightly progressive in that manner where individuals are putting forth according to their earnings. In the skewed hyper-progressive marginal taxes high earners pay far more than their 'fair share'.

How does the poor remain poor? Also, how does the wealthy remain wealthy (or get wealthy in the first place)? There are dozens of opportunities available for 'poor' to become rich. Is every hard working person going to strike it rich? No, there is a bit of luck involved - but in the same manner, the rich don't neccessarilly stay rich. The 'richness' of the top15 richest Americans (according to http://en.wikipedia.org/wiki/List_of_members_of_the_Forbes_400_(2010)" ) goes back at most 1 generation - if at all (basically - non-Walton and Koch are 'new money' in the top 15 list). So, again, how are the rich 'staying rich'? None of those individual's family's had money prior to 1900. Several of them only gained their fortune since 1980 (Gates, LarEl, google guys).

Why do the poor commit crimes? Or maybe they're poor because they have a tendency to commit crime? I can't really think of many crimes that are done out of 'neccessity' but instead, laziness. I don't think anyone here is arguing against temporary safety nets for individuals that fall victim to bad fortune. Again I go to the 'plenty of opportunity' - if someone didn't do well in school, bounces between jobs, drinks/drugs/etc, and the government is still carrying them? Why?

Lastly, who says there is a finite amount of 'wealthy' individuals and that their wealth is at the expense of the poor? To the contrary, I'd think that the wealthy are more apt to feed off of each other in a proper market environment. Why take a penny from everyone in the US when you can play big stakes games with other fat cats?

 

[Char. Limit]

I just don't get this mentality. The cost of letting the wealthy be wealthy is that the poor remain poor, and this creates a general state of inequality between people, which seems clearly sub-optimal. I'm pretty sure the poorest people are the ones most responsible to crimes/social problems, so fixing that/helping them, will benefit the whole country, including the rich.

I would defend my point, but Al68 and mege are actually doing a pretty good job themselves defending it, and I don't want to screw it up.

 

[SixNein]

Here is an interesting read on the topic from Kurgman posted in 2002:

http://spot.colorado.edu/~kaplan/econ3080/Krugman-middle.html

 

[mege]

Nearly all of Krugman's shallow arguements have been already addressed in the thread in one form or another. One thing he says in particular hasn't:

Over the past 30 years most people have seen only modest salary increases: the average annual salary in America, expressed in 1998 dollars (that is, adjusted for inflation), rose from $32,522 in 1970 to $35,864 in 1999. That's about a 10 percent increase over 29 years -- progress, but not much. Over the same period, however, according to Fortune magazine, the average real annual compensation of the top 100 C.E.O.'s went from $1.3 million -- 39 times the pay of an average worker -- to $37.5 million, more than 1,000 times the pay of ordinary workers.

He doesn't take into account the size of businseses between that period. Far more companies are now global instead of just national companies. I would be interested to see CEO salaries compared to the total employment of those companies compared? I'd wager that the ratio there is the same, esspecially since far more americans are employed by large corporations than in the past (which indicates corporations are larger as well).

This type of reasoning is the flaw in much of Krugman's arguements in that piece and others he's written. He seems to forget that the US has taken on the leadership (economically, in this case) of much of the world. We have some of the richest individuals because of their global mindset. If our economic policies change to punish the wealthy, they will just go elsewhere - where it's a more friendly atmosphere. Sure, some may stay - but if 'hoarding money' is all the rich are good for (in the eyes of a collectivist), then why wouldn't they make the smart choice (for themselves) and move elsewhere in the face of their wealth being stolen?

Nothing in Krugman's articles even come close to answering the question: how are the wealthy 'keeping down' the poor? His only analysis in the article SixNein linked is the 'superstar analogy' - rather than 1000 'ok' comedians running around making average wages, there's 10 superstar comedians taking all the gigs and 990 trying to be like the top 10. That just doesn't work with the non-entertainment industry, and he never proves a link to apply it to economics as a whole. It's a nice story, and probably true of thesbians/athletes, but I fail to see it's application in individual wages as a whole. There may be some argument made in terms of small business not being able to compete with large businesses, but is that a wealth distribution problem? No. That's just called 'efficiency' of the market. A good business idea that cannot be done efficiently at large scale will succeed as a small business. Someone trying to make and sell custom home-made cell phones out of their garage will not succeed, and nor should they.

 

[russ_watters]

1. He fails to provide statistical evidence to support his starting premises:

The vast income and wealth inequalities of the Gilded Age had disappeared.

2. He argues that income inequality was high, then dropped during the great depression, then started rising again. Isn't that an argument against his point? The time of "best" income inequality was the worst economic period we've ever had! That implies to me that rising income inequality is a positive sign, not a negative one! Perhaps if we hadn't eaten the rich in the 1930s, there would have been rich people available to create jobs...?

3. He points out that we are not at the top of the development heap, but fails to account for the effect of immigration. Unlike Europe, which has a pretty stagnant population, the US is continuously fed, and largely from the bottom. The fact that our poverty rate has historically been falling despite the fact that we are continuously adding poor people to our population is pretty impressive to me.

4. He, like many of his political persuasion assumes even if just implicitly that wealth is a zero sum game. The implication here is that if the rich had less money, the middle class would have more [of that money]. The premise is wrong and the logic connected to would be faulty even if it wasn't! He hasn't established a causal relationship. A graph of incomes by bracket since just after WWII shows relatively linear rises in income (though the lines did flatten a bit after 1970): http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg
If there is a group above the 5%tile that is rising in a rate that is not linear, so what? Smells like jealousy to me.

5. I also don't like his argument style. It's easy to find people who have misconceptions about economic facts and citing them doesn't imply that everyone who believes the opposite of what you believe falls under the same misconceptions. It's a weak style: if you can't argue against the best the other side has to offer, your argument is probably pretty weak itself.

 

[daveb]

In the skewed hyper-progressive marginal taxes high earners pay far more than their 'fair share'.

I'm glad you put "fair share" in quotes. This, to me, is the crux of the whole debate over redistribution of wealth/taxing the wealthy. What is fair? Those on one side would proabbly say fair is the same rate as everyone else. Others would say the same amount as everyone else. Others would say a proportion based upon how much they enjoy the services/benefits of the government. Others would still have a different criteria about what is "fair". But it all boils down to opinions, and it's rare that a person goes from one side to the other (though it does happen).

 

[SixNein]

Nearly all of Krugman's shallow arguements have been already addressed in the thread in one form or another. One thing he says in particular hasn't:



He doesn't take into account the size of businseses between that period. Far more companies are now global instead of just national companies. I would be interested to see CEO salaries compared to the total employment of those companies compared? I'd wager that the ratio there is the same, esspecially since far more americans are employed by large corporations than in the past (which indicates corporations are larger as well).

This type of reasoning is the flaw in much of Krugman's arguements in that piece and others he's written. He seems to forget that the US has taken on the leadership (economically, in this case) of much of the world. We have some of the richest individuals because of their global mindset. If our economic policies change to punish the wealthy, they will just go elsewhere - where it's a more friendly atmosphere. Sure, some may stay - but if 'hoarding money' is all the rich are good for (in the eyes of a collectivist), then why wouldn't they make the smart choice (for themselves) and move elsewhere in the face of their wealth being stolen?

Nothing in Krugman's articles even come close to answering the question: how are the wealthy 'keeping down' the poor? His only analysis in the article SixNein linked is the 'superstar analogy' - rather than 1000 'ok' comedians running around making average wages, there's 10 superstar comedians taking all the gigs and 990 trying to be like the top 10. That just doesn't work with the non-entertainment industry, and he never proves a link to apply it to economics as a whole. It's a nice story, and probably true of thesbians/athletes, but I fail to see it's application in individual wages as a whole. There may be some argument made in terms of small business not being able to compete with large businesses, but is that a wealth distribution problem? No. That's just called 'efficiency' of the market. A good business idea that cannot be done efficiently at large scale will succeed as a small business. Someone trying to make and sell custom home-made cell phones out of their garage will not succeed, and nor should they.

Speaking of small business...

According to SBA.gov, small businesses account for:

*

Represent 99.7 percent of all employer firms.
*

Employ just over half of all private sector employees.
*

Pay 44 percent of total U.S. private payroll.
*

Have generated 64 percent of net new jobs over the past 15 years.
*

Create more than half of the nonfarm private gross domestic product (GDP).
*

Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
*

Are 52 percent home-based and 2 percent franchises.
*

Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007.
*

Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.


http://www.sba.gov/advocacy/7495/8420

Does small businesses enjoy the same treatment by the government as large business? How can legislation and policy effect small businesses ability compete with large businesses?

Can the super rich use legislation as a tool to gain unfair advantages?

 

[Vanadium 50]

Much of what I see in the people that surround me, is sort of what I would call a "Santa Claus" syndrome; "I'm really poor, but I want to be rich, and I know I will be rich some day.

In previous messages, I have pointed out who the "rich" are. If we want to tax our way to a balanced budget, the 91% bracket has to kick in at an income of about $70,000 a year. That's a perfectly valid choice, but we need to understand what that choice is.

I don't think aspiring to make $70,000 a year is "Santa Claus".

So screw this tax stuff. It's double taxation!"

The only thing I have every heard "double taxation" referred to is capital gains taxes. You seem like a reasonable guy, so let me explain the logic behind a low capital gains tax rate. I don't buy the "double taxation" argument - the government can tax the same dollar as many times as it likes. This explains it with the Law Of One Price, which is found on page 2 of most Econ 101 textbooks.

The present rate on 10-year Treasuries is 3.1%. If I want to buy a $100 10-year Treasury, how much should I pay for it? If you work it out, the answer is $74.41. If I am in the 31% bracket when I redeem it, I will pay $7.93 in taxes.

OK, now I believe I can sell a share of stock in XYZ Corp. in 10 years for $100. If the capital gains tax rate is 15%, how much should I be willing to pay for it today? The answer is $79.22. When I sell it, I will only pay $3.12 in taxes, so I am willing to pay more for a share of stock than the Treasury.

Now if the capital gains tax goes up to 31%, the stock is only worth $74.41. So raising the capital gains rate from 15% to 31% causes the stock price to fall 6%.

In 2009, the IRS collected $60B in capital gains tax. Assuming that it increases proportionally to rate (something any economist and even the budget forecasters at OMB will dispute - this is a strict upper limit), the IRS will collect at most an extra $64B for it. However, 6% of the market's wealth, or about $2.4T, would be wiped out in order to do this. To put this in perspective, this is 30 Hurricane Katrinas.

 

[SixNein]

1. He fails to provide statistical evidence to support his starting premises:

Perhaps he was offering a qualitative analysis. His audience was the NY Times.

2. He argues that income inequality was high, then dropped during the great depression, then started rising again. Isn't that an argument against his point? The time of "best" income inequality was the worst economic period we've ever had! That implies to me that rising income inequality is a positive sign, not a negative one! Perhaps if we hadn't eaten the rich in the 1930s, there would have been rich people available to create jobs...?

"Incomes then stayed fairly equally distributed until the 1970's"

3. He points out that we are not at the top of the development heap, but fails to account for the effect of immigration. Unlike Europe, which has a pretty stagnant population, the US is continuously fed, and largely from the bottom. The fact that our poverty rate has historically been falling despite the fact that we are continuously adding poor people to our population is pretty impressive to me.

I think the European nations might disagree.

http://en.wikipedia.org/wiki/Immigration_to_Europe

4. He, like many of his political persuasion assumes even if just implicitly that wealth is a zero sum game. The implication here is that if the rich had less money, the middle class would have more [of that money]. The premise is wrong and the logic connected to would be faulty even if it wasn't! He hasn't established a causal relationship. A graph of incomes by bracket since just after WWII shows relatively linear rises in income (though the lines did flatten a bit after 1970): http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg
If there is a group above the 5%tile that is rising in a rate that is not linear, so what? Smells like jealousy to me.

I personally thought he was making a social argument as much or more than an economic argument.

5. I also don't like his argument style. It's easy to find people who have misconceptions about economic facts and citing them doesn't imply that everyone who believes the opposite of what you believe falls under the same misconceptions. It's a weak style: if you can't argue against the best the other side has to offer, your argument is probably pretty weak itself.

I don't know I would accuse Krugman of having misconceptions about economic facts. He's won the noble piece prize in economics, and he's one of the highest cited economists in the world.

 

[russ_watters]

I have a more direct, ethics-based argument that many may find simply offensive, but I think the logic is pretty strong if people are willing to set their emotions and sense of entitlement aside for a minute and fairly consider the logic in this thesis:

The rich are worth it, the poor are not.

Now that's not universally true, but by and large, I think that's the principle driver of economic inequality in the US. People get paid what they are worth. Of course in a capitalist system, it is true by definition that absent manipulation of market forces, the market determines what jobs and products are worth, but I think there is a real logic/ethics to it (which is why I'm a capitalist):

It is taken as a given by an arguer against income inequality that incomes for everyone should be increasing by a similar rate. But why? Why assume everyone is worth equally more? Are they doing the same amount more work? The same amount harder work? Have the qualifications increased by equal fractions? Aside from the secondary supply and demand driver, it is illogical to think that people should get more money for the same job just because other people are getting richer. The fundamental problem behind it is this: Jobs at the bottom are not getting more demanding, therefore they aren't worth more money than they used to be. Examples:

Does a janitor today do more work than a janitor 30 years ago? So why does he deserve to get paid more? (both rhetorical: he doesn't).

I highly respect police officers. It is a thankless, difficult and dangerous job, but has the job of a beat cop changed much in the past 30 years? In some cases, use of technology may increase the breadth of the skillset, but beyond that, I doubt much has changed. So there shouldn't be much of a difference in pay.

A carpenter today is vastly more productive than a carpenter 30 years ago, so he should get vastly paid more, right? Wrong: the carpenter outputs more work, but inputs less effort than was required 30 years ago. If anything, he should be paid less, not more. The people who should be rewarded for the output of the carpenter are the ones who invented, produced, and bought the power tools that enable the carpenter to be more productive. The rich people.

A machinist. Depends on the type, but the industry has been revolutionized over the past 30 years or so with computers controlling them. A machinist with modern skills? Should probably get paid a lot more than a machinist 30 years ago.

Random office drone. Like the carpenter, they output a lot more than 30 years ago, but they do it because technology has made their job easier. Wow, you can use MS word?! So can my 12-year old (caveat: I don't have kids). So they aren't worth any more than 30 years ago. An awful lot of middle class, college educated people have such jobs, but they require no special skills or growth. They don't deserve more money. Short anecdote: I worked as a temp doing that kind of job while in high school and college - one company even fired their resident stoner and tried to hire me full time. Hell. No.

Engineers (me). The job has gotten more demanding as the demands on the industry and demand for the services have increased. The easiest way to demonstrate this is via the gradually (but continually) increasing requirements for aquiring a PE license. In addition, the job changes - perhaps not the complexity, but there is always innovation and therefore always more to learn. This job is worth more to society than 30 years ago. Not vastly more, but more.

Bill Gates, Steve Jobs, Jeff Bezos, whatever Walton was in charge, and a thousand others like them: These are some of the super-rich that people hate. They are fabulously wealthy, but seeing as how they revolutionized most of what we do in our daily lives over the past 30 years, I think they've earned it.

Oil tycoons. The original and reincarnated "robber barons". Except that the Sherman Act prevents the type of monopolistic abuses that made the original robber barons robber barons. So why do we hate the oil tycoons today? Because they're rich. Because we pay them a lot of money for their product. That's it. Waa. It is unfair and illogical that we fantasize and nostalgize the 49ers, but hate the guys who actually found the gold. Wait, maybe that's it: few of the 49ers actually got rich, so there's nothing to be jealous about! Waa. It's childish. These guys are lottery winners. Yeah, some luck goes into that, but sometimes getting rich takes some luck. It doesn't make sense to hate someone because they are lucky.

Money managers. These are the guys I have a problem with. And it isn't really even about being super-rich: many of the "just rich" got that way via the same business model. They've found a way to get paid based on taking a percentage of the medium that is the raw material/product that flows through their industry. That medium happens to be money. That would be like me getting paid in therms of gas or kWh of electricity that the systems I design use. It doesn't make sense to me. A mutual fund gets "loaded" at a percentage of the money in it, but that's not their product. The product is the investment strategy. The amount of money in a fund has no bearing whatsoever on the difficulty of an investment manager's job. That's a business model I'd like to see changed, but it is hard for me to hate people who for the most part just joined a flawed industry and didn't create it (this is why physicists are joining the industry). That said, the same attitude of entitlement that brought up this issue also motivates some to think they deserve what they get paid. Short anecdote: my sister is a financial analyst and had to listen to the traders whine over their lower bonuses in '08 and '09. They felt they deserved bonuses even though their funds lost money. I disagree.

Lawers. See: Money managers - the same logic applies. If you look, though, you can probably find a lawyer willing to work by the hour instead of on contingency.

I think I've rambled a bit here, but I'd like to see someone address the basic point: why should people who haven't substantially increased the skills or effort of a job be paid much more than their predicessors? Better yet, besides a little bit just for loyalty, why should someone who does exactly the same job they did 30 years ago (a 50 year old carpenter, for example) get paid more than they did 30 years ago? Their productivity (input) probably peaked 20 years ago!

 

[mheslep]

I don't know I would accuse Krugman of having misconceptions about economic facts. He's won the noble piece prize in economics, and he's one of the highest cited economists in the world.

Well there are Nobel laureates in physics out there lending support to cold fusion, thus the reason for the peer review publication process to vet serious scholarship versus appeals to plaques on the wall or even NYT bylines. I don't see anyone here challenging arguments in one of Krugman's peer reviewed papers, which he doesn't publish anymore, but rather the unsourced http://krugman.blogs.nytimes.com/2011/06/23/a-fit-of-peaks/" BTW, Krugman is noted for trade theory, not macro.

 

[russ_watters]

SixNein, fyi you misread #5. I didnt say he had misconceptions I said he argued against them. I'll respond in more detail later.

 

[SixNein]

I think I've rambled a bit here, but I'd like to see someone address the basic point: why should people who haven't substantially increased the skills or effort of a job be paid much more than their predicessors? Better yet, besides a little bit just for loyalty, why should someone who does exactly the same job they did 30 years ago (a 50 year old carpenter, for example) get paid more than they did 30 years ago? Their productivity (input) probably peaked 20 years ago!

In my opinion, worth is decided by the ability to bargain. Should a janitor have the ability to bargain for his or her best interest? From the perspective of a janitor, he or she observes that the company is a great deal more successful and higher positions in the company have seen continued wage increases while the janitor hasn't seen a raise in 30 years. On top of that, the Janitor has been working longer hours and has been assigned more duties. Would the janitor be wise to use every tool at his disposal to negotiate for a better raise? How about joining a union? Many seem to believe that unions are fundamentally evil. In some companies, one can get fired instantly for mentioning that blasphemous word.

http://www.prweb.com/releases/2011/4/prweb8301902.htm

To turn your question on its head, do corporate executives perform more today than 30 years ago?

I think you are viewing inequality in one dimensional terms. For example, a http://www.csmonitor.com/USA/Education/2011/0630/Civil-rights-survey-3-000-US-high-schools-don-t-have-math-beyond-Algebra-I" claims that nearly 3,000 high schools only teach mathematics up to algebra 1. Do these students have the same options as students who are taught up to a calculus level?

Inequality to me is about how many options one has in life and how well one is represented at the government level; however, inequality is not about conditions resulting from bad decisions. In other words, are people born equal in the United States?