Left Behind Economics

From the New York Times via The Progressive American, the columnist and Princeton economist recently described as a "socialist" by right-wing nutcase Bill O'Reilly, Paul Krugman, considers economic growth that benefits only the rich:

Here's what happened in 2004. The U.S. economy grew 4.2 percent, a very good number. Yet last August the Census Bureau reported that real median family income — the purchasing power of the typical family — actually fell. Meanwhile, poverty increased, as did the number of Americans without health insurance. So where did the growth go?

The answer comes from the economists Thomas Piketty and Emmanuel Saez, whose long-term estimates of income equality have become the gold standard for research on this topic, and who have recently updated their estimates to include 2004. They show that even if you exclude capital gains from a rising stock market, in 2004 the real income of the richest 1 percent of Americans surged by almost 12.5 percent. Meanwhile, the average real income of the bottom 99 percent of the population rose only 1.5 percent. In other words, a relative handful of people received most of the benefits of growth.

There are a couple of additional revelations in the 2004 data. One is that growth didn't just bypass the poor and the lower middle class, it bypassed the upper middle class too. Even people at the 95th percentile of the income distribution — that is, people richer than 19 out of 20 Americans — gained only modestly. The big increases went only to people who were already in the economic stratosphere.

The other revelation is that being highly educated was no guarantee of sharing in the benefits of economic growth. There's a persistent myth, perpetuated by economists who should know better — like Edward Lazear, the chairman of the president's Council of Economic Advisers — that rising inequality in the United States is mainly a matter of a rising gap between those with a lot of education and those without. But census data show that the real earnings of the typical college graduate actually fell in 2004.

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The entire philosophical notion that the right wing uses to justify its love affair with the rich is that their wealthy campaign contributers need generous handouts from the governmet so that they will invest it, which, in turn, stimulates the economy, which, in turn, creates jobs and raises--it's the old JFK notion about a rising tide "lifting all the boats." Well, that may have been the case fifty years ago, but it's obviously not true today: these old economic equations no longer work, and today, divorced from reality, they simply serve as intellectual cover for the conservatives' relentless savaging of the middle and working classes in this country.

I'm not sure why the tax cut money isn't trickling down to where it's most needed. It's probably some combination of the rich simply sitting on it, or spending it on stupid shit like yahts, with better business smarts about how to hold onto profits for themselves instead of turning them into higher wages. Of this, however, I'm sure: it's now been convincingly illustrated that economic growth is not the same thing as better economic times for the nation as a whole. The sooner the "lifting all the boats" concept is gone from public discourse, the better.

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