Home > Economics - General > Soaking the rich

Soaking the rich

August 23rd, 2011

Matt Yglesias says

Many on the right and center indicate that in order to restore the economy, President Obama needs to do more to cater to the whims of rich businessmen. Many on the left feel that this is exactly wrong and that in order to restore the economy, President Obama needs to do more to stick it to the rich and dispossess them. History suggests that both are wrong.

He goes on to give plenty of evidence for the wrongness of the first proposition, and none at all for the second.

As has been pointed out many times, the Great Compression in income distribution during the 1950s and 1960s, driven in part by policies designed quite explicitly to “stick it to the rich”, was also a time of full employment and steadily growing economic growth. And, while the success of those policies made it sensible to focus on other issues, such as civil rights[1], rather than seeking to push economic redistribution even further, the situation is exactly the opposite today.

When the top 1 per cent have 25 per cent of all income and this share is steadily growing, a government that doesn’t soak the rich can’t do much more than spread the pain a bit more evenly, whether this means cutting services to balance the budget without higher taxes on the bottom 99 per cent, or squeezing out a bit of extra revenue to preserve essential parts of the welfare state.

There doesn’t seem to be much in the way of substantive disagreement here. In this recent post, Yglesias (if I read him correctly) endorses a top marginal tax rate of 80 per cent, close enough to the 90 per cent rate I advocated not long ago (this was really a rhetorical flourish, not an actual policy proposal).

So the problem seems to be one of strategy, but I’m not sure what it is. I admit that I can’t see a promising way forward at present (the revolts in Wisconsin and Ohio are the best signs), but I can see that reversing the flow of income to the top 1 per cent is a crucial precondition. I also can’t work out whether Yglesias is proposing to shelve the issue of income distribution and try to make progress on other fronts (a strategy I regard as doomed to failure) or has something else in mind.

fn1. In this context, let me point out the absurdity of the inevitable claim that the benefits of the Great Compression were only for white males. It was, of course true that, in 1950, Jim Crow ruled and women were subject to all kinds of economic and other discrimination, but these things were products of the highly unequal society in which they emerged. Racial and gender inequality reinforced, and was supported by, economic inequality. During the Great Compression, Jim Crow was swept away, the Voting Rights Act was passed, women gained the right to equal pay and protection against various kinds of discrimination. The Congress even passed the Equal Rights Amendment, which would have been another big step forward if the ratification effort had not been caught up in the rightwing reaction of the 1970s. The fact is that the Great Contraction produced more progress in civil rights, in the US, Australia and elsewhere, than any comparable period before or since.

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  1. August 24th, 2011 at 08:34 | #1

    you say: “The fact is that the Great Contraction produced more progress in civil rights, in the US, Australia and elsewhere, than any comparable period before or since.”

    you make the same mistake that many immature (or dishonest) scientists make when they are trying to tease out causation from correlation

    because something happens at the same time as something else it does not imply causation in any way whatsoever – i would suggest that ALL “great” social progress is a consequence of there being more fat to go around

    we have just emerged from one of the most astounding periods of all human history – when we dug up and made available enormous amounts of free energy that was stored over millions of years

    all that free energy meant free fat for everyone

    but when the squeeze comes all your lovely social niceties like “civil rights” etc will quickly disappear – humans are not nice creatures – or had you not figured that out from history yet?

    when all of what we are today
    is dim dim distant past
    a racial memory mostly myth
    known to the shaman caste

    http://thepeakoilpoet.blogspot.com/2011/08/for-our-sons-and-daughters-too.html

  2. Chris Warren
    August 24th, 2011 at 08:49 | #2

    When absolutely ALL else has failed, and millions of Americans are homeless, filling the queues at soup kitchens (and prison canteens) or are relying on food stamps – finally, a splinter of economists turn towards the rich …

    Tax the Rich 1

    Tax the Rich 2

    While it is a little bit more complicated, nonetheless, the billions being soaked-up by banks and BHP and the job losses in manufacturing and retail, clearly expose the long-term underlying reality of our capitalist economy.

    Increasing taxes on the super-rich and (more usefully) on companies – including a Tobin tax – will at least maintain the welfare state and ensure that capitalists doe not protect themselves by jettisoning others.

    However taxing does not address the real problem. It is collecting manure after the horse has bolted.

  3. Alan
    August 24th, 2011 at 09:44 | #3

    @The Peak Oil Poet

    One of the differences between economics and the physical sciences is that every data point [1] is evidence for the theories espoused by clever, correct-thinking people and disproves the nonsense spouted by the other side[2].

    One can find numerous economic analyses proving that government policies in the 1930s exacerbated and shortened the Great Depression, that high tax rates in the 1950s assisted and hampered economic growth and that goverment regulation of banks increases and decreases prosperity.

    fn1 – regardless of what information (if any) is in the data
    fn2 – no matter who or what the other side might be

  4. John Nightingale
    August 24th, 2011 at 09:50 | #4

    Interesting that Warren Buffett would like to be quite a bit more ‘soaked’, and believes many of his fellow multi-billionaires would also (Stop Coddling the Super-Rich, WARREN E. BUFFETT
    New York Times OpEd: August 14, 2011).

    But when public policy is determined by $$ of advertising, there’s not much hope of re-Compression. And as re-Compression is the only way back to social stability and sanity …

  5. Chris Warren
    August 24th, 2011 at 10:10 | #5

    Repost

    When absolutely ALL else has failed, and millions of Americans are homeless, fill the queues at soup kitchens and prison canteens or rely on food stamps, finally, a splinter of economists turn towards the rich …

    See:

    1] economix.blogs.nytimes.com/2011/08/23/what-the-rich-can-afford-in-income-tax/

    2] economix.blogs.nytimes.com/2011/08/22/a-sales-tax-on-wall-street-transactions/

    While it is a little bit more complicated, nonetheless, the billions being soaked-up by banks and BHP and the job losses in manufacturing and retail, clearly expose the long-term underlying reality of our capitalist economy.

    Increasing taxes on the super-rich and (more usefully) on companies – including a Tobin tax – will at least maintain the welfare state and ensure that capitalists doe not protect themselves by jettisoning others.

    However taxing does not address the real problem. It is collecting manure after the horse has bolted.

  6. Tim Macknay
    August 24th, 2011 at 11:58 | #7

    @The Peak Oil Poet
    If you’re serious, you might want to think about doing something more useful than publishing wearisomely didactic poetry on the internet.

  7. Jim Birch
    August 24th, 2011 at 12:17 | #8

    @The Peak Oil Poet

    Perhaps John could have elaborated his statement as “The fact is that the period of the Great Compression produced more progress in civil rights, in the US, Australia and elsewhere, than any comparable period before or since.” I don’t think he was proposing an instant magical absolute necessity but indicating that these were related for a variety of reasons that would require a lot of elaboration.

    More generally, while it may be silly to assume that humans are “nice” creatures – there a massive amount of contrary evidence – it is equally facile and counterfactual to presume that they are not and therefore things like the development of human rights are some kind of weird aberration.

    In fact, both evolutionary theory and the observable facts on the ground indicate that cooperation is adaptive, and furthermore that strategies that are more generous than simple tit-for-tat – what might be called “niceness”, perhaps – are required for cooperation to persist. Numerous human characteristics – including hairless faces, tricolour vision, shame physiology, language development and moral capacity – create significant biological costs and would not have evolved except to support cooperation.

    Of course, cooperation is always in conflict with defection: (loosely) defectors do well in a sea of cooperators, but loose when they predominate. So it’s not a one or the other situation, there’s an ongoing struggle between the strategies. You might like to read Martin Nowak’s “Supercooperators” for some background to the evolution of cooperation and altruism if you want to follow this up yourself. Nowak’s work uses mathematical analysis, not whimsical ideas about the niceness or nastiness of the human species.

  8. fred
    August 24th, 2011 at 12:22 | #9

    @Megan
    Thanks for that.
    I think, I’m not sure I wanted to see that.
    It was sick, as in obscene.
    Not Stewart, but the Fox-Republicans who want to take from that have nots.
    The last little section of half a dozen of them with their glib heartless jibes sickened me.
    What sort of people allow them to talk this ….?
    I despair.

    From gospel”Matthew” 13:12
    “For to the one who has, more will be given, and he will have an abundance, but from the one who has not, even what he has will be taken away”

  9. Ikonoclast
    August 24th, 2011 at 13:33 | #10

    There is pretty much zero chance of the U.S. ever adopting tax policies of sticking it to the rich. The oligarchic and corporate capital stranglehold on power in the US is near absolute. The wealthy, right wing attitudes over there (towards the poor) go beyond indifference and reveal a bottomless pit of visceral and vicious hatred towards the poor. The wealthy in the U.S. actually want a lot of extreme poverty to exist so they can get their rocks off hating and reviling the poor and feeling immeasureably superior to them. The naked selfishness and nastiness on display in that video, from the Fox-Tea Party-Repubs, was almost beyond belief. Quite frankly, the bulk of the US far right are sociopaths.

    In Australia, things are better and we still have some chance of returning to more equitable policies.

  10. August 24th, 2011 at 13:34 | #11

    It was, wasn’t it Fred?

    Even their starting point factoid about half Americans paying “no” tax is rubbish.

  11. Fran Barlow
    August 24th, 2011 at 14:17 | #12

    @fred

    From gospel: Matthew 13:12 For to the one who has, more will be given, and he will have an abundance, but from the one who has not, even what he has will be taken away”

    Much as I like taking swings at The Bible …

    The language notwithstanding, this is not, in context, a defence of privilege. The “having” referred to “grace” i.e regarding one’s life as measured by one’s connection with god rather than material things …

    Just saying …

  12. August 24th, 2011 at 14:37 | #13

    @Tim Macknay

    :-)

    aw you’re just

    1. Jealous because you can’t write poetry or
    2. Jealous because you can but you can’t value your poetry or yourself so you project or
    3. you have only read my wearisomely didactic poems or
    4. you have read other than my wearisomely didactic poems but you have no taste

    and, as for serious, my view is that nothing can be done about the future we make for ourselves and all is just fleeting commentary – akin to the cry of gulls or the squealing of pigs – yours being in the later category maybe

    pop

  13. fred
    August 24th, 2011 at 15:39 | #14

    @Fran Barlow
    True, I just thought it was apt with respect to the Fox/Repub commentators context.
    Particularly so when you look at the original gospel “Mark”, from which the author of “Matthew” got these words, where it applies to ‘understanding”.
    The Foxy ones are sadly lacking in that.

  14. August 24th, 2011 at 15:49 | #15

    @Jim Birch

    yup readit and much like it over the years of reading evolutionary this and that

    repetitive prisoner’s dilemma eh :-)

    like you say – in a world of cooperators the uncooperative do very nicely thank you very much

    but a time comes when so many are feeding off the commons that it collapses and wipes out most of the population

    whence the cycle might go again

    maybe

    pop

    Gods gift: our soul, peeks out sometimes
    when poets fall in love
    for every cell of being cries
    the praise of God above
    and from such love come mighty things
    an infinite surprise
    of poets new who’ll speak of love
    and open all our eyes

  15. Tim Macknay
    August 24th, 2011 at 16:03 | #16

    @The Peak Oil Poet
    Actually none of the above. I was annoyed by your insinuation that the post author is immature or dishonest, which you seem to have made purely because he doesn’t share your particular take on peak oil.

  16. August 24th, 2011 at 18:57 | #17

    @Tim Macknay

    Actually i had no idea he was a “disbeliever” in “Peak Oil”

    so on your hint i went and looked

    this one suggests to me he has no idea whatsoever about what peak oil is

    http://thinkprogress.org/yglesias/2011/01/03/199511/peak-oil/

    but that’s not unusual – lots of people have very shallow knowledge of subjects yet are quite prepared to give an opinion

    and incidentally – you have no idea what my “take” on peak oil is – only what i have written in the past though i doubt that you have actually read anything that old nor know what my motives might have been for writing

    so i wonder if it’s a case of the pot and kettle thing :-)

    i was not insinuating anything – was pointing out a blatant untruth of association and explaining how it is a a [lie] but one that is often told out of ignorance of statistics and numbers and occasionally out of downright dishonesty (of the “intellectual variety)

    shooting from the hip is fun but sometimes dangerous

    pop

  17. August 25th, 2011 at 06:59 | #18

    An interesting feature of the US income distribution – as pointed out last night in Melbourne by Richard Freeman is that the top 0.1% of US income earners get 12.3% of total US incomes. In the US there is a tiny group of individuals who control a significant share of total US output. This group have captured the Republicans – that is well known – but Freeman claims have also captured Obama.

    If the top 0.1% of income earners had given up their amazing income growth over the past 30 nears Freeman calculates average wages in the US (including the rest of the top 1%) could have been increased by 10% instead of remaining stationary as they have.

    Amazing stuff. With the prospect of massive income gains goes corruption. Every person has their price! Corruption and sleazy business dealings are now endemic in US politics and business as a consequence of the rising inequality.

  18. Chris Warren
    August 25th, 2011 at 11:20 | #19

    @hc

    In Australia, similar tendencies are at work. Workers have steadily been expropriated – since 1975. The evidence seems clear. See:

    econodata.presentselect.com/charts/basic?q=Wages+%25+of+GDP&u=test1

    Steve Keen has done something useful with this new EconData initiative.

  19. Tim Macknay
    August 25th, 2011 at 11:22 | #20

    @The Peak Oil Poet

    We seem to have crossed wires – I assumed you were insinuating that John Quiggin is immature or dishonest – after all, this is his blog, on which you are commenting. But now you say you’re only acusing Matthew Yglesias of dishonesty and/or immaturity. I presume you think that makes it OK then.

    and incidentally – you have no idea what my “take” on peak oil is – only what i have written in the past though i doubt that you have actually read anything that old nor know what my motives might have been for writing

    Taking your comment seriously would imply that none of your poetry or anything you have said on this comments thread actually reflect your views on anything. If that is the case, it’s a bit rich to be accusing anyone else of dishonesty.

    Also, so far on this thread you have:

    - accused the blog poster of being immature or dishonest;
    - accused me of an inability to value poetry and/or having poor taste;
    - compared my comments to the squealing of a pig;
    - accused Matt Yglesias of intellectual dishonesty; and
    - to add insult to injury, followed up your insinuations with a friendly emoticon.

    You might consider trying out the concept of commenting without insulting anybody. Being obnoxious is not an entry requirement for calling yourself a poet.

    shooting from the hip is fun but sometimes dangerous

    Jesus wept.

  20. August 25th, 2011 at 13:40 | #21

    @Tim Macknay

    gosh you ARE aggressive

    are you one of those really angry people i read about?

  21. Tim Macknay
    August 25th, 2011 at 13:54 | #22

    No aggression here – just forthright pointing out someone’s unnacceptable behaviour.

  22. Tim Macknay
    August 25th, 2011 at 13:55 | #23

    Oops – spelling error. That should be ‘unacceptable’.

  23. August 25th, 2011 at 14:01 | #24

    @Tim Macknay

    says god eh

    but i hear that’s what makes a Christian a Christian – the deep seated driven need to point out the flaws in others – even though Jesus specifically identified that as something to try and learn not to do

    i guess that’s why he wept eh

    p

  24. Tim Macknay
    August 25th, 2011 at 14:45 | #25

    @The Peak Oil Poet
    I haven’t the foggiest what your last comment means, frankly.

  25. Davi Allen
    August 25th, 2011 at 17:41 | #26

    I see the French rich have asked their gov to tax them more. Selfsoak.

  26. Chris Warren
    August 25th, 2011 at 19:31 | #27

    @Davi Allen

    The usefulness of this depends on the rate. With all these things – the devil is in the detail – some reports have this as a once-only contribution. So this could just be a typical act of ‘conspicuous charity’ by gin-soaked billionaires. No doubt Oprah, and Madonna will get into the act if their publicity agents can guarantee sufficient exposure.

    If the payment is structured as a ‘contribution’, then will they will seek a tax deduction in future years for this years ‘contribution’ (or some such trick).

    The French government was already working on taxing incomes over 1 million euros. This is more useful.

    Those companies and individuals with regular incomes over a million $A should be hit with greater tax scales than those on 55,000.

    We don’t need them to offer-up some other ploy in parallel.

  27. Marx
    August 26th, 2011 at 08:28 | #28

    @hc The corruption in US government is even worse. All the President does raise cash for his re-election bid.

  28. Mulga Mumblebrain
    August 28th, 2011 at 16:14 | #29

    The ‘Great Contraction’ only occurred because the US was scared of Communism. The Soviet Union was powerful, China went Red, etc, and memories of the Great Depression (the latest of many) were fresh, so the rulers allowed a little social advance. They even allowed it in the de-colonising Third World, where socialist policies led to great advance.
    However, by the 1970s the Right could no longer tolerate seeing the rabble, who they hate with visceral intensity, doing so well. So the reaction set in, as did heightened belligerence against the USSR and China. And the poor world was flung back into penury by the contrived ‘Debt Crises’. Then, when the USSR disappeared, everything went into overdrive. What we have now, unprecedented global inequality and gigantic debt, deliberately incurred in the USA by tax cuts to the rich and gargantuan military expenditure, was all carefully planned and executed, precisely to provide the excuse for massive social retrenchment. This is the culmination of a neo-feudal project carefully planned and executed over decades. It has, unfortunately, run into ecological collapse and resource depletion, which the Right cannot acknowledge as it gives the lie to their huge, ego-driven, delusions of omnipotence and omniscience. They have, I believe, decided to ‘ride out’ these crises while facilitating and promoting Malthusian solutions in the poor world.
    We will not even properly understand what is destroying humanity, let alone reverse it, unless we truly recognise the forces at work. This goes beyond economics, politics and geo-strategy. This is a battle between Good and Evil, between Life and Death, ie a spiritual fight, being fought in the hearts and minds of humanity. Some human beings fear and despise others, and reject co-operation and collectivism because they do not wish others to enjoy a decent sufficiency of life’s goods. They prefer to pile up more and more of the common wealth in their own hands, and, the motivation being pathopsychological and insatiable (someone else will always have MORE)they will never stop, no matter how many others they impoverish in the process. The continued global dominance of the Rightwing dead souls, the fearful hence hateful hence destructive force that seeks comfort in riches and dominance over others, spells the end for humanity. This type had centuries of fun grinding the peasantry into the mire, invading the neighbours, conquering the New World and slaughtering the indigenous with genocidal relish, felling the great forests, exterminating or decimating the buffalo and passenger pigeons, the great whales and the various other ‘profitable’ species and mining and burning hydrocarbons, but that’s all over. We need a different type to lead humanity, and we need ‘em fast. But how do we remove the incubus of the Right? Even today, as the environmental calamity reaches a frightful crescendo, they absolutely refuse to even acknowledge that it is happening, and are moving heaven and earth to stop the sane fraction of humanity from acting.

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