Knocking Down the Economic Strawmen (The Hidden Krugman)

To help continue the awareness of economic inequality (spearheaded by my co-blogger, Old Fogey), here are some excerpts from Paul Krugman's excellent Friday column, Whining Over Discontent (fully available to Times Select subscribers), which attempts to clarify some points in the face of right-wing strawmen.

First, why are we suddenly talking so much about inequality? Not because a few economists decided to make inequality an issue. It’s the public — not progressive pundits — that has been telling pollsters the economy is “only fair” or “poor,” even though the overall growth rate is O.K. by historical standards.

Political analysts tried all sorts of explanations for popular discontent with the “Bush boom” — it’s the price of gasoline; no, people are in a bad mood because of Iraq — before finally acknowledging that most Americans think it’s a bad economy because for them, it is. The lion’s share of the benefits from recent economic growth has gone to a small, wealthy minority, while most Americans were worse off in 2005 than they were in 2000.

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Second, notice the amount of time that inequality’s apologists spend attacking a claim nobody is making: that there has been a clear long-term decline in middle-class living standards. Yes, real median family income has risen since the late 1970’s (with the most convincing gains taking place during the Clinton years). But the rise was very small — small enough that other considerations, like increasing economic insecurity, make it unclear whether families are better or worse off. And that’s the point: the United States as a whole has grown a lot richer over the past generation, but the typical American family hasn’t.

Third, notice the desperate effort to find some number, any number, to support claims that increasing inequality is just a matter of a rising payoff to education and skill. Conservative commentators tell us about wage gains for one-eyed bearded men with 2.5 years of college, or whatever — and conveniently forget to adjust for inflation. In fact, the data refute any suggestion that education is a guarantee of income gains: once you adjust for inflation, you find that the income of a typical household headed by a college graduate was lower in 2005 than in 2000.

More broadly, right-wing commentators would like you to believe that the economy’s winners are a large group, like college graduates or people with agreeable personalities. But the winners’ circle is actually very small. Even households at the 95th percentile — that is, households richer than 19 out of 20 Americans — have seen their real income rise less than 1 percent a year since the late 1970’s. But the income of the richest 1 percent has roughly doubled, and the income of the top 0.01 percent — people with incomes of more than $5 million in 2004 — has risen by a factor of 5.

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According to new estimates by Thomas Piketty and Emmanuel Saez, the leading experts on long-term trends in inequality, the effective federal tax rate on the richest 0.01 percent has fallen from about 60 percent in 1980 to about 34 percent today. Meanwhile, the U.S. government — unlike any other government in the advanced world — does nothing as more and more working families find themselves unable to obtain health insurance.

The good news is that these concerns are finally breaking through into our political discourse. I’m sure that the usual suspects will come up with further efforts to confuse the issue. I say, bring ’em on: we’ve got the arguments, and the facts, to win this debate.