Mickey Kaus on the Rising Tide that Lifts Only Yachts

Mickey Kaus must have fallen from the trickle down line about a rising tide lifting all boats:

I’m not denying income inequality is rising – I wrote a book based on the reality that income inequality is rising–or that Bush-era prosperity, in particular, hasn’t been as widely shared as prosperity in other eras. My suggestion is only that if you keep the economy going and stop new immigrant entrants from flooding in at the bottom, entry-level wages will eventually rise and people will start complaining (as they did in the late 1990s) about the “U-shaped” economy in which the rich and the poor were gaining faster than the middle

Kevin Drum says the evidence does not support what Kaus said. Kevin wants us to look at the real income of families in the bottom fifth of the population as documented in this table. Kevin argues that the income for the poorest of us has been flat for 30 years “through good times and bad”. He continues with:

How long is it supposed to take for an economic expansion to turn into a tight labor market? Over the past three decades, the only time the median wage has increased significantly was during the late 90s, and that was thanks to the most intense, highest-flying bubble in a generation. We can’t count on that happening again any time soon. I’m as big a fan of a hot economy as the next person, but the stubborn fact is that economic growth over the past three decades has produced next to no gains for the average worker. And even if it did, what’s the magic key to manufacturing an endless expansion? None that I know of. There’s a Nobel Prize waiting for the guy who can figure out how to do away with the business cycle. I happen to think that median wage stagnation has gone on long enough that it’s plainly a serious problem and plainly something that needs to be addressed via policy. For some reason, the free market has disconnected wage gains from productivity gains in recent years, and there’s no indication that this is going to change on its own.

Well, our graph does not show that this series is exactly flat even if real income in 2005 was about the same as real income way back in 1978. But if Kevin’s point is that a go-go economy is not a sufficient condition for reducing poverty, he’s exactly right. It is true that most people’s income tends to rise during upswings in the business cycle, while most people’s real income tends to decline during recessions. But as Kevin notes – business cycles come and go. Yes, real income of the very poor fell during the double-dip 1980 and 1982 recessions. But even with the recovery during the 1980’s, real income never reached what it had been in 1979 until we saw the Clinton boom. And even as we are supposedly back to full employment now, real income of the very poor in 2005 is far below what it was in 2000.

Rightwingers lover to state the War On Poverty has been a failure. It’s not a favor no more than the 2001 invasion of Afghanistan to rout the Taliban and Al Qaeda was a failure. But if you stop fighting a war to divert resources elsewhere (the Iraq War or tax cuts for the very rich), then it’s not exactly a recipe for continued success. Our success at reducing poverty during the 1990’s is due only in part to the Clinton boom. The Clinton Administration was also interested in reducing poverty – unlike the current Administration (apparently).

But notice something else. The War on Poverty continued to succeed during the 1970’s even though we had the Nixon recession and the Ford recession. While it is clear that a go-go economy is not a sufficient condition for reducing poverty, one has to wonder whether it’s an even a necessary condition. Then again – I’m on record as favoring more aggregate demand growth (which is to say I hope our friend Max Sawicky doesn’t shoot me).