James Pethokoukis

Politics and policy from inside Washington

Can Obama be deprogrammed?

Sep 27, 2010 14:29 UTC

Some interesting stuff in this piece by Michael Lind:

Instead of the updated Rooseveltonomics that America needs, Obama’s team offers warmed-over Rubinomics from the 1990s. Consider the priorities of the Obama administration: the environment, healthcare and education. Why these priorities, as opposed to others, like employment, high wages and manufacturing? The answer is that these three goals co-opt the activist left while fitting neatly into a neoliberal narrative that could as easily have been told in 1999 as in 2009. The story is this: New Dealers and Keynesians are wrong to think that industrial capitalism is permanently and inherently prone to self-destruction, if left to itself. Except in hundred-year disasters, the market economy is basically sound and self-correcting. Government can, however, help the market indirectly, by providing these three public goods, which, thanks to “market failures,” the private sector will not provide.

Me: To me the biggest issue that Obama needs to change his mind on is that economic inequality/redistribution is America’s biggest problem rather than slow growth.(It is certainly not working politically.) Of course, it may be that Obama is such a New Normal believer that he thinks slow growth is a given.


I don’t know what world you live in, but the capitalism I see is becoming less stable and more destructive. With each passing recession, the results get worse and the time interval gets less and less. Looks like a complex system de-constructing

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Study: Income inequality in America is overstated

Sep 23, 2009 17:36 UTC

First the summary of new research from economist Robert Gordon:

The rise in American inequality has been exaggerated both in magnitude and timing. Commentators lament the large gap between the growth rates of real median household income and of private sector productivity. This paper shows that a conceptually consistent measure of this growth gap over 1979 to 2007 is only one-tenth of the conventional measure. Further, the timing of the rise of inequality is often misunderstood. By some measures inequality stopped growing after 2000 and by others inequality has not grown since 1993. This cessation of inequality’s secular rise in 2000 is evident from the growth of Census mean vs. median income, and in the income share of the top one percent of the income distribution. The income share of the 91st to 95th percentile has not increased since 1983, and the income ratio of the 90th to 10th percentile has barely increased since 1986. Further, despite a transient decline in labor’s income share in 2000-06, by mid-2009 labor’s share had returned virtually to the same value as in 1983, 1991, and 2001.

Recent contributions in the inequality literature have raised questions about previous research on skill-biased technical change and the managerial power of CEOs. Directly supporting our theme of prior exaggeration of the rise of inequality is new research showing that price indexes for the poor rise more slowly than for the rich, causing most empirical measures of inequality to overstate the growth of real income of the rich vs. the poor. Further, as much as two-thirds of the post-1980 increase in the college wage premium disappears when allowance is made for the faster rise in the cost of living in cities where the college educated congregate and for the lower quality of housing in those cities. A continuing tendency for life expectancy to increase faster among the rich than among the poor reflects the joint impact of education on both economic and health outcomes, some of which are driven by the behavioral choices of the less educated.

Me: Indeed, part of this is the Wal-Mart factor where lower-income households have been able to substitute less expensive goods, giving their real spending power a big boost.


Despicable and ignorant. Maybe it’s not alright that people HAVE TO shop at Walmart just to stretch their dollars… using that kind of barometer to say everything is alright for people who have to spend every dollar they make to make ends meet, I think that says a lot about the author. I would love to propose to anyone who thinks that people are better off today than, say, ten years ago try this simple test: try to only spend what you could make working 50hrs a week (ie two part time jobs) at Walmart or MacDonald’s (after taxes, so roughly $300/wk) for a whole month. That’s food, utilities, gasoline. Let’s see how you feel about the economy after that exercise. Maybe, if you live alone, you’re ok, but try it with 2 or more dependants (kids). If you don’t starve first, comeback afterwards and write a commentary in this blog.

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The New York Times, the super-rich, income inequality and taxes

Aug 21, 2009 18:22 UTC

Some thoughts on today’s NY Times story about the falling fortunes of the once super-rich:

1) Yay! It actually made the point that tax rates affect economic behavior:

In the three decades after World War II, when the incomes of the rich grew more slowly than those of the middle class, the top marginal rate ranged from 70 to 91 percent. Mr. Piketty, one of the economists who analyzed the I.R.S. data, argues that these high rates did not affect merely post-tax income. They also helped hold down the pretax incomes of the wealthy, he says, by giving them less incentive to make many millions of dollars.

2) Boo! It also seems to accept this explanation, by Piketty co-author Emmanuel Saez, as to why income inequality has risen in recent decades (via a Saez paper):

A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II – such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality.

3) Boo! It underplays the role of globalization and technology in creating greater income inequality in favor of blaming asset bubbles and tax rates. Here is bit from a story I wrote about income inequality, quoting Saez:

At the top, what you primarily have is executives at large companies who are paid very large salaries with bonuses and stock options,” Saez says. “It has really become a truly global market for the talent of executives.” So it’s not so much that globalization has driven down wages because the average U.S. worker has to compete with a low-paid competitor in China or India. (About a quarter-million jobs are lost annually to offshoring, which works out to only 0.18 percent of the workforce.) Rather, globalization has increased the demand for top corporate managers, and it has made companies more valuable as it has spurred economic growth and higher stock market values. That has boosted executives’ income-from salaries, stock options, and capital gains.

Then there’s technology:

Rapid technological change, which itself is driving globalization, is also pushing wage inequality. “Inequality is related to technology, and … you really require more skills to operate in a challenging economy driven by technology,” says Daron Acemoglu, an economics professor at MIT. According to the liberal Economic Policy Institute, inflation-adjusted wages for male high school graduates have slipped 6 percent since 1980, while rising 20 percent for college graduates and 35 percent for those with an advanced degree. Technology places a premium not only on computer skills but on the managerial and organizational abilities needed to run a modern, networked company.

4) Boo. It failed to mention how globalization had made real-world income inquality virtually non-existent. Again, from me:

More and more research is revealing that the supposed rise in income inequality is a bit of a crock. One reason is the “China Effect.” A recent University of Chicago study found official income inequality statistics fail to take into account that lower-income Americans tend to consume more inexpensive Asian goods. As the study’s authors conclude, “This price effect offsets almost all the rise in inequality measured by official statistics.” And whatever slight rise in inequality that’s left over can easily be explained by technology and the expanded global market for CEO talent.

Amazing stat of the day!

Jun 15, 2009 19:41 UTC

I don’t know what this means, but I think it means something that will change all of our lives in a deep and profound way. From the wonderful Mark Perry:

Using the sortable Major League Baseball historical database, there were 1,226 active professional baseball players in the major leagues in 2008, and there were 4,877 total home runs for the season. The top 5% of the MLB players raned by the number of home runs hit in 2008 (63 players with between 22 and 48 home runs for the season), hit 1,779 home runs, or 36.5% of the total.

Interestingly, in 2006 (most recent year) the IRS reported that the top 5% of American taxpayers earned 36.6% of the total taxable income that year.

In other words, home runs are distributed just about as unequally as income – the top 5% earn a disproportionate share of income, about 36%; and the top 5% of baseball players hit a disproportionate amount of home runs, about 36%.