Over at Crooked Timber, there’s been an extensive neoliberalism (mainly, though not exclusively, in the US sense of this term, which is broadly akin to “Third Way” Labor”) and political theory. I’ve been largely on the sidelines. That’s mainly because, observing the US political and economic situation, I have a very clear view on what policies could, in principle, sustain a progressive political movement, but (given my distance from the scene and the absence of anything substantial enough to force its attention on the mass media) no real idea about how such a movement might develop. Here’s a post I put up there, slightly edited to remove some points that led to thread derailment.
My analysis is quite simple and follows the apocryphal statement attributed to Willie Sutton. The wealth that has accrued to those in the top 1 per cent of the US income distribution is so massive that any serious policy program must begin by clawing it back.[1]
If their 25 per cent, or the great bulk of it, is off-limits, then it’s impossible to see any good resolution of the current US crisis. It’s unsurprising that lots of voters are unwilling to pay higher taxes, even to prevent the complete collapse of public sector services. Median household income has been static or declining for the past decade, household wealth has fallen by something like 50 per cent (at least for ordinary households whose wealth, if they have any, is dominated by home equity) and the easy credit that made the whole process tolerable for decades has disappeared. In these circumstances, welshing on obligations to retired teachers, police officers and firefighters looks only fair.
In both policy and political terms, nothing can be achieved under these circumstances, except at the expense of the top 1 per cent. This is a contingent, but inescapable fact about massively unequal, and economically stagnant, societies like the US in 2010. By contrast, in a society like that of the 1950s and 1960s, where most people could plausibly regard themselves as middle class and where middle class incomes were steadily rising, the big questions could be put in terms of the mix of public goods and private income that was best for the representative middle class citizen. The question of how much (more) to tax the very rich was secondary – their share of national income was already at an all time low.
The problem is that most policy analysts and commentators grew up in the world of the 1950s and 1960s, or at least in the mental world created by that era. So, they are busy fighting about tax expenditures, barber licensing and teachers unions, and the implications of these things for a hypothetical working class mobilisation. Meanwhile, most of the anger created by the collapse of middle class America is being directed not at the rich but at those who don’t look, sound or pray like Americans of the vanished golden age.
fn1. When I was at the American Economic Association meetings in January I went to a session where a group of Very Serious Economists (Holtz-Eakin, Elmendorf and others) discussed the US budget problem, which comes down to the fact that on a structural basis US public expenditure exceeds revenue by something like 7 per cent of national income. I made the comment that this gap was almost exactly equal to the increase in the share of income going to the top 1 per cent of households over the last decade or so. The Very Serious Guys declined to respond, and waited for a serious question. I wasn’t surprised, but I wasn’t impressed either.
John Quiggin 
You say it yourself in the anecdote. A beaut thread starter dealing with all the zany lunacy of the neolib post 2008 world.
The logic creates a space for monsters like Breivik and Bolt, Murdoch and Brooks, given that life is reduced to nothing better than atomisation and “self will run riot”.
There are so many absurdities going on in the world nowadays who knows where to begin. Not necessarily the place to start but triple A should have gone some time ago for US debt. The Chinese rating agency Dagong took that away from the US some time ago. No wonder they won’t let them into the US market.
http://www.dagongcredit.com/dagongweb/english/index.php
The US has been increasingly dysfunctional for many years now. Given the weaponry they have amassed this is a clear and present danger.
Congress Continues Debate Over Whether Or Not Nation Should Be Economically Ruined
WASHINGTON—Members of the U.S. Congress reported Wednesday they were continuing to carefully debate the issue of whether or not they should allow the country to descend into a roiling economic meltdown of historically dire proportions. “It is a question that, I think, is worthy of serious consideration: Should we take steps to avoid a crippling, decades-long depression that would lead to disastrous consequences on a worldwide scale? Or should we not do that?” asked House Majority Leader Eric Cantor (R-VA), adding that arguments could be made for both sides, and that the debate over ensuring America’s financial solvency versus allowing the nation to default on its debt—which would torpedo stock markets, cause mortgage and interests rates to skyrocket, and decimate the value of the U.S. dollar—is “certainly a conversation worth having.”
A middle class with stagnating income and stripped of much of its wealth, a small and dominant group of very rich individuals, a heavy and unmanageable deficit because of war, an ineffectual social democracy, the rise of right wing extremism. How come I keep thinking of Germany in the 1920s?
This top tier group you refer to. How rich are they. Ie what is their median income and median net worth. Obviously they are not all Bill Gates. Also how will they respond? Is there capital highly mobile or is it domestically contained? To what extent will they take it off the table (ie capital strike) from an investment perspective under a higher tax regime?
I think they need to start abolishing federal departments. Ie Education, NASA etc. The states need to fill any void but given many of the duplications that may not mean more state spending.
I’m interested in other perspectives and insights. I’m not that intimate with US data.
The US today is a long way from the ethos of sacrifice for the Nation’s good that characterised the “greatest generation” and was echoed by Kennedy’s “ask not what your country can do for you … ”
The traditional slavery on which the US long depended has become latter day economic slavery, where it’s simply accepted that poor people need more than one full-time job in order to subsist in the USA. The country sees it as necessary that there will always be somebody to flip its burgers and clean up its messes both domestic and, miltarily, foreign, but an actual individual found doing such a poorly paid job must be poor through their own failings or laziness.
There’s a logical flaw at the heart of the US economy today and at best a small minority of people capable of seeing that (hardly any of them in Congress).
I always took that to mean don’t ask for handouts. And whilst they were not delivered before his death Kennedy slashed the top tax rate. See his speech on YouTube about a rising tide lifting all boats (ie another metaphor for trickle down).
when they talk about “sharing the load” why not take them up on it?
naive,disingenuous but possibly credible?
@TerjeP
At Wikipedia there are more of those pithy quotes from Kennedy’s inaugural speech: http://en.wikipedia.org/wiki/Inaugural_address_of_John_F._Kennedy
I’m suggesting that in a time of national crisis those with the means to help, it might be hoped, might volunteer to help. The unemployed, working poor, and increasing fractions of the middle class in the US have less capacity to sacrifice for their country today than do those who’ve done far better than have they over recent decades.
[OK as even one hyperlink appears to put my comment into moderation (as a result Terje probably never even got to see a response I made to him on a previous thread “yet-more-monckton”) I’ll take off the beginning of the link to Wikipedia]
@TerjeP
At Wikipedia there are more of those pithy quotes from Kennedy’s inaugural speech: en.wikipedia.org/wiki/Inaugural_address_of_John_F._Kennedy
I’m suggesting that in a time of national crisis those with the means to help, it might be hoped, might volunteer to help. The unemployed, working poor, and increasing fractions of the middle class in the US have less capacity to sacrifice for their country today than do those who’ve done far better than have they over recent decades.
It seems to me if the influential people in the USA were to re-focus their debate on the ‘material welfare’ of all the people in the USA then the people in a large part of the rest of the world wouldn’t have to worry about the monetary externalities of the outcome of their budget debates. Alternatively put, the mess is too big to fit it into a ‘budget debate’.
If the Chinese and the Indian governments were to also focus on the material welfare of all the people in China and India, we might end up with something sensible.
If there ever is an opportunity for the USA to provide leadership in democracy and demonstrate a lose but important relationship between ‘market economies’ and democracy then it is now . Lets see what happens.
@TerjeP
The quote ends: but what you can do for your country … How did that slip by? An oversight, doubtless.
FTR, from about 1932 to the early 1960s, IIRC the top US marginal tax rate was never less than 70% and for a period after the war (i.e. when America was seen as at the peak of its power) it hovered around 90% peaking at 93%.
Tax rates fell sharply after 1980, and the US has never recovered.
In my opinion, the first task of the jurisdiction (though surely not the last) is to see to the needs of its people. That means reconciling the resources you have or can contrive, with the minimum standard you think consistent with dignity of the life of even your least advantaged citizens while ensuring that the standard is in fact maintainable over time. While seeking to do that as effectively and efficiently as possible is prudent, that costs what it costs and you levy what you need to in order to get that done, or if the resources don’t exist, in order to approach getting that done. If wealthier people have to dig deeper or work harder, then so be it. If that means some marginal business operations head off-shore into some tax haven, then that’s too bad. If that means you can’t afford a two-ocean navy or to occupy 2 or 3 foreign countries, or prop up some sympathetic dictator, then that’s a clear bonus.
In partial answer to Terjep’s questions “This top tier group you refer to. How rich are they”.
Somewhat dated but a starting point and maybe others have more recent specific info.
http://multinationalmonitor.org/mm2003/03may/may03interviewswolff.html
“in the last survey year, 1998, the richest 1 percent of households owned 38 percent of all wealth.”
Wollf is worth reading.
@TerjeP
You inquire about ‘capital mobility’. The short answer is that those who invested their savings in mobile homes can move their ‘capital’ south over the Mexican border or north into Canada. Beyond this presumably quantitatively trivial example, the notion of ‘capital mobility’ isn’t all that self-evident. As for financial capital mobility, as long as the USA was pursuing the income tax cut ideology* financial capital flight was a real problem for smaller countries (eg some in South America, some in the EU). Where is US private financial capital going to go to in response to an increase income tax for the high wealth and high income people? To Greece? Into gold? Under the bed? At which exchange rate are the Swiss going to convert massive amounts of US dollars into sfr?
*I distinguish between an income tax cut, includig that of the top income bracket, under some conditions and income tax cut as a policy objective per se. Only the latter is an ideological position in my books.
Capital mobility (flight) doesn’t move physical assets (given that gold is no longer used for settlement). It does, however, change asset prices, and wreck balance sheets, regardless of how efficiently a business is being operated (that is, unless big bad government steps in to stop the madness). Given that a lot of business are now globalised, the US going down the drain could result in a major headquarters move, which would further erode the US tax base. In addition, the loss of reserve currency for the world status, and safe haven status, which provided some revenue through seignorage and an implicit subsidy on various borrowings (both government and private sector borrowing) will do the US further damage.
We are getting a chance to see why Socrates and Plato were not too keen on democracy. (One thing though, the franchise was not as wide in ancient Greece, and their electorate was not nearly as stupid as the current US electorate. Nor did they have such exquisite instruments for their own destruction.)
I cannot imagine private enterprise putting an amazing piece of purely scientific research kit like the Hubble telescope into space. Unfortunately some people don’t seem to understand that there are more important questions than “how much money can we make out of this?”. And these questions and their answers make our lives all the more richer.
Fran points and I look. Yes, great Terje, when Murdoch, Koch Bros, Wall st Bankers, Lockheed Martin, Halliburton on Carlyle and all the rest ask, “what they can do for their country” rather than the opposite.
Leader ship by example, for the poor?… bwwwaaawwhhhaaahha
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
For the Murdochs, Koch Bros, Wall St Bankers, and so on of the world, their current nationality is always just a flag of convenience. That flag is always as disposable as a used tissue. The US is at present and has been a most convenient flag, and there has been lots of money from wrapping it around oneself. The wealthy, via their lobbyists, have been able to suck the blood out of that country, and via American hegemony, out of the rest of the world. But if that changes, and another flag offers superior benefits….
You “ask not what your country can do for you, but what you can do for your country” and by extension what you can do for the wealthy of your country. But don’t expect the wealthy of America to do anything for you. In fact, when they are finished don’t even expect them to leave you a country. Having sucked heavily past the point of death, and with nothing unexploited and unlooted worthy of the effort, they will simply walk (or sail or fly) away.
New Zealand is lucky they had the Christchurch earthquakes. After the Lord of the Rings trilogy, that country had been popular with Americans looking for their bolt hole. Now the shaky isles have managed to shake their interest off, we will have to be on the watch for wealthy American refugees – boat people of a type we will definitely be better off without.
I agree with Prof. JQ. The tax strike by the richest 1% is exactly why the US deficit is so large. I call it a tax strike because that is effectively what it is. The richest 1% have engineered a situation financially, politically and propaganda-wise whereby they can go on indefinite strike against paying taxes. The weakness of American democracy is that the rest of the polity has let them get away with it.
We are now approaching the endgame of this tax strike. Fiscally, the approach is no longer sustainable. Massive deficit spending via printing money would would keep things going a while longer until hyperinflation kicked in but this too has been expressly vetoed by the right. The only other real alternatives now are collapse and revolution or a declaration of Martial Law.
I am beginning to wonder whether the lunatic Tea Party fringe are simply a convenient cover for a much more focused extreme right in the USA. The agenda of this extreme right appears to be to deliberately precipitate a world crisis at this point. The reasoning would be;
1. Provoke an world economic depression to reduce consumption of limited resources.
2. Declare martial law in the US to take complete control.
3. Activate war plans to fight a protracted global war over the remaining resources.
Of course, such a plan is insane and is clearly a lose-lose-lose-lose proposition right round the table. But ask youself, are you confident that the American elite are still in touch with reality?
7% of GDP is also the difference between US (19%) and French(7%) health care costs (Cassandra does Tokyo)
Americans cannot afford their health care insurers, their doctors, their military, the high labour costs of some firemen, teachers and police, nor their low taxes on the wealthy.
John, do you have a good infographic of the type shown in the ‘global wealth pyramid’ from this Credit Suisse report:
http://www.zerohedge.com/article/detailed-look-global-wealth-distribution
that also shows wealth condensation with the proportion of wealth controlled by the upper tier increasing over time – the 25% controlled by 2% to which you refer? My understanding is that the last few decades have seen a massive redistribution of global wealth up to the richest, but I’m short on a good source online. Thanks in advance in case you’ve got something.
The following is someone else’s post from someone else’s blog I saved a couple of years ago.
“How to create a Third World nation:
Allow the home market for your industries to be captured by foreign firms that aggressively protect their own home markets.
Allow mass immigration that undercuts wages and overloads schools, hospitals, neighborhoods, infrastructure, police and the natural environment.
Promote a popular culture that glorifies gangsters, pimps, drug addicts and strippers.
Allow a parasitic “investment” banking cartel to dominate the economy and political system, while using as its propaganda arm the media and academia.
Pursue a costly foreign policy that stations hundreds of thousands of troops overseas in order to defend economic rivals, allowing those economic rivals to spend very little on their own defense. Entangle your nation with alliances that are not in your national interest, putting the lives of your youth on the line for powerful and corrupting special interest groups or to secure loans made by bankers.
Spend billions upon billions on foreign “aid” while your nation is running massive budget deficits and your own infrastructure is falling into disrepair, and poverty in your own nation is widespread and increasing.
Create huge government debts that place a heavy burden on future generations and lower their living standards below that of previous generations, while enriching usurious and parasitic international bankers.
Follow these simple steps, and Voila! A great nation and culture is reduced to a vast slum with small pockets of opulent enclaves.”
Fred – telling me that the top 1% controls 38% of wealth does not tell me what their median wealth and median income is. Although thanks for trying to be helpful.
Were I a wealthy American and assuming I was moved by your words to want to help the less fortunate in society why on earth would I choose extra tax payments as the vehicle for such a good deed? Better to bypass Washington and give directly. Not only would it be more efficient but I’d also get accolades for being a great guy. As such I don’t see how such a plea helps correct problems with the federal budget.
It isn’t the quoted bit I was responding to. However in full my interpretation of his words would be:-
1. Don’t ask for a handout.
2. Be a productive member of society.
It’s pretty good advise. I wish a few modern politicians could say it in such a moving way.
I’m beginning to wonder whether their rich, astroturfing benefactors decided some time ago to liquidate all their real estate, stock and bond investments and buy stacks of gold, and are now counting down to payday.
One definition of ‘money’ from a Tibetan monk that I know of, is (paraphrasing liberally): ‘the concretisation of vitality or human energy, guided mainly by desire, with a little bit of thought thrown in’.
I think this human aspect sub standing money is just as important as any systemic discussion. The thing about money is that it has grown over the millennia from something meant to minister to personal and family needs, to something in the hands of the great capitalistic systems – the future we desire for it is to minister to group and world need.
This will be impossible unless greed, selfishness and short-sightedness are overcome.
Money currently flows into all of the myriad homes; the great capitalistic systems and monopolies, religious, philanthropic, educational and medical institutions of the world – yet such a teeny proportion of it is spent in reality on betterment of human living; or for the inculcation of values that will lead to Peace and better human relations.
These are the true ‘imbalances’ of the world.
So much money is deflected into non-essential material aspects of living that are little better than entertainment or indulgence; or money is held back because of separative differences in opinion, or prejudice – such that the true assistance of humanity (one species on one planet earth – the only one for light years around) is overlooked.
Not one Government (who are supposed to be the champions of public purpose) has a Department of Peace, or a Department of Ending the Suffering and Starvation with a budget to match the essentialness of its mission. Yet people have always clamored for peace, justice and a sense of security.
In all of this, the right use of money and a realisation on the part of our so-called ‘world leaders’ as to their actual responsibilities would help. This sense of financial responsibility is to be found nowhere other than in a few. While we wait much of humanity starves, remains uneducated, or is brought up on false values.
All because of the wrong use of money.
Besides ministering to personal need, money is useless without meaning and purpose (Bill Gates). I wish that were ‘the focus of reality’.
Instead, the ‘sovereign chimp’ rules.
Cheers …
jrbarch
jrbarch – pure sophistry.
Dear John,
More sophistry for TerjeP to gnash his teeth over. For a more sophisticated understanding please head over to Warren’s: Moslereconomics
Cheers …
jrbarch
@TerjeP
From the article I cited :
“A household in the middle — the median household — has wealth of about $62,000. $62,000 is not insignificant, but if you consider that the top 1 percent of households’ average wealth is $12.5 million, you can see what a difference there is in the distribution.
…….The bottom 20 percent basically have zero wealth”
Even McCain is telling his party that they’re nuts.
http://www.washingtonpost.com/blogs/plum-line/post/mccain-erupts-conservatives-are-lying-to-america/2011/03/03/gIQAUm2HdI_blog.html
Things are bad when someone who runs Sarah Palin as a credible VP candidate want to disown them.
Apologies to Terpe re the assumption of ‘gnashing’. Would be interested in something a little more explanative than the one word ‘sophistry’ though (if you feel like it).
Cheers …
jrbarch
Fred – thanks. $12.5 million is an exceptional sum. However it is the average for the top 1%. I suspect the median is vastly lower. The top 1% may control most of the wealth but I suspect the bulk of them are not exceptionally wealthy, just wealthy. And those that are exceptionally wealthy don’t represent the bulk of the wealth.
Our host has been very careful in expressing how a feasible policy is to be implemented.
Interesting link, Freelander. McCain had to teach some of the people, who run under the label republican, elementary arithmatic.
@TerjeP
From here:
Click to access saez-UStopincomes-2007.pdf
See figure 3.
In 2007 the top .01% of US families earned [if that is the right word] around 6% of all income.
To become a member of the top .01%, income had to exceed $11,477,000 for that year.
That’s income not wealth.
Addition is yet another liberal plot.
I’m surprised no-one in the Republicans has yet pointed out the obvious evils of writing, which is perhaps the ultimate liberal plot. After all, Karl Marx wrote the Communist Manifesto!!1!!!1!
Quiggin is very good at pointing out the key issue. In this case again his point is spot on, but it is also depressing, as changing the situation is difficult given how much power the rich have because of their wealth. Its a classic example of the golden rule, where he who has the gold rules not only politically and in the media but also in the world of ideas. I think the rise of neo-classical economics in the academy has a lot to do with the influence of the rich in the USA.
Some nice graphics and tables on inequality in the link below.
http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph
Under some condition, there is a tight relationship between ‘addition’ and ‘feasibility’. Those who can’t do additions don’t understand the word ‘feasibility’ even if they can write it. McCain said a lot.
John Goss, fully concur with you regarding Prof Quiggin’s blog posts pointing to key issues. But, I can’t concur with you regarding neo-classical economics – at least not all of it. For example, the Arrow-Debreu model can be considered neo-classical. In this model there is a minimum wealth condition (without it the notion of ‘freedom of choice’ would not make sense). After reading Prof Q’s blog for a few years, I’ve made up my mind that ‘capitalism’ has been hiding behind neo-classical economics. There is a difference.
@Salient Green
Australian and USA have much in common.
TerjeP,
Applying a little bit of arithmetic,
that 1% of 310,000,000 ….3.1 million, with their average 12.5 million wealth, command 39 trillion dollars. 9 trillion of that paid as taxes would not severely impinge on the life styles of these people, but it would have a huge effect on the financial status of the nation.
This is the argument under way. Those with the greatest living comfort insist that those with the least living comfort should sacrafice to solve their nation’s problems, so that those with the most can continue to improve their situation with the least effort.
Which side of the argument do you support?
Hang on, adjustment required.
That was households, not people. So with 2.59 being the average household size, then the top 1 percent of households (1.197 million) with their 12.5 million, command 15 trillion dollars.
The other 99% of the households (119.3 million) with their 62 thousand dollars command 7.4 trillion dollars.
So assuming the figures are correctish then it paints a pretty clear picture of how effective wealth distribution efforts have been for the US public. It works really well for the 1 percent.
Are you proposing a wealth tax rather than income tax? Taking a quarter of their wealth may not cripple them in the first year but on such a plan it won’t be more than a few years before they have no wealth at all. Who does the government eat then?
I think @TerjeP you are defending the indefensible.
What intrigues me is that while the figures for GDP and income share are reasonably well known to the informed that there is no political discussion for the US Government (or any government for that matter) to manage supply and demand with the same automatic stabilisers that kick in at different phases in the business cycle.
What’s wrong with targeting income distribution and profit/wage shares with a super tax/rebate if these persistently move in one direction? And why can’t asset inflation be targeted and taxed on a moving scale in the same way as CPI (consumption) inflation? And why can’t national targets be set for health, education, transport and defence as a percentage of GDP, with appropriate adjustments, such as a war tax when defence blows out due to wars (which would at the least discourage them).
Neo-liberalism to me seems a failed ideology doing what @TerjeP is doing here; offering a fig leaf of increasingly diaphanous rationale for the ongoing and escalating MAD (mutually assured destruction) class war now raging at a global level.
Not a wealth tax, Terje, but a slightly more progressive level of taxation in the first place. That in conjunction with a dynamic move to get the US “working” again.
The second of these is under way driven mostly by the plunge of the US dollar. I spoke to the President of a large dental consumeable manufacturer yesterday, I was hunting for some chemical information, and took the opportunity to talk about getting the US working and he said that his business was pulling much of its manufacturing back form China and re-equipping for local manufacture with a bank of CNC machines and injection moulding machines.
That is the only approach that will work. Tone down the greed, and up the work effort. It is a very solid business model.
@BilB
Equally, AIUI, the largest corporates in the US pay virtually no tax at all, as a proportion of their profits, revenues, equity or whatever. Ultimately, it is these untaxed funds that flow, in part, to the richest 1.12 million households in the US, so ensuring that the corporates and the upper income earners contribute more reasonably needs to be spread across both heads, so as to avoid tax avoidance strategies.
Effective personal and corporate taxation needs to be kept closely reconciled. This is an argument for a diversified tax mix accompanied by suitable mechanisms for transfer payments to ensure that the resultant benefits distribution meets at least reasonable equity tests — geographic, social and temporal.
This is a denialist presentation. If you “suspect” something, this could be your own propagandist intrusion.
If you want to maintain such a position then you need to provide evidence.
The rotten state of US (and other capo-states) taxation regimes are well known and wealth and income inequality has been well described ever since the 1960’s.
All due to a capo-Keynesian misunderstanding of a propensity to consume which is unmatched by the capitalist propensity to pay wages and share wealth.