Links Worth Noting at CBPP: more on causes of deficit and increases in income inequality
by Linda Beale
crossposted with Ataxingmatter
Some Links Worth Noting at CBPP–causes of deficit, increases in income inequality
Center on Budget and Policy Priorities, Where Today’s Large Deficits Come From
Amidst all the renewed talk about budget deficits, it’s important to remind ourselves what caused the signficiant expansion of the deficit. As I’ve noted, it can be attributed primarily to three things: Bush’s tax cuts, Bush’s decision to go to war in Afghanistan and Iraq, and the need for economic stimulus and financial system bailout to counter the financial crisis that began in the next to last year of Bush’s Administration as a result of the four-decades-long financialization of the economy due to deregulation and development of a casino-gambling mentality in the nation’s commercial and investment banks. The Center’s graphs and data do a good job of setting out more of the details of those three causes of the deficit.
Center on Budget and Policy Priorities, Income Gaps Between Very Rich and Everyone Else More than Tripled in the last three decades, new data show,June 25, 2010, hat tip Tax Prof
The facts of income disparity increase in this country are startling, and the likely result–in terms of corporatist capture of government policies (as witnessed in the “flawed success” of financial reform, as noted by Salon’s Andrew Leonard) and continued degradation of lifestyle for most ordinary Americans, is disturbingly remininiscent of the “roaring twenties” contrasts in lifestyles of the poor and the excessively rich. Even the Great Recession hasn’t given Congress the will to shake the shackles of catering to the uber-wealthy class, as witnessed by the failure to enact a carried interest provision (treating the compensation income of venture capital, private equity, hedge fund, real estate and any other service partner as the compensation income that it is, subject to ordinary rates just like every other type of compensation income), the limited success in dealing with health care reform (limited, since the corporations were able to stave off a public option that would have forced them to accept lower profits and make health care more affordable for all), and the limited success of financial reform (which left banks with some proprietary trading–up to 3% of their capital–and with the ability to retain most of their derivatives profits, even though the trading and derivatives represent considerable risk to taxpayers and little productive value for the economy).
Here are several key points detailed in the report:
- Between 1979 and 2007, average after-tax incomes for the top 1 percent rose by 281 percent after adjusting for inflation — an increase in income of $973,100 per household — compared to increases of 25 percent ($11,200 per household) for the middle fifth of households and 16 percent ($2,400 per household) for the bottom fifth.
- In 2007, the average household in the top 1 percent had an income of $1.3 million, up $88,800 just from the prior year; this $88,800 gain is well above the total 2007 income of the average middle-income household.
- The CBO figures show that the nation’s income has grown substantially since 1979; if this growth had been shared more broadly, most groups would have seen much larger gains. For the nation as a whole, after-tax household income increased 55 percent from 1979 to 2007, adjusted for inflation. If all groups’ incomes had grown by 55 percent, the average income of the bottom fifth of households would have been $23,710 in 2007 (rather than $17,700) and the average income of the middle fifth would have been $68,342 (rather than $55,300). Instead, the wealthiest households reaped a sharply growing share of the nation’s income, while the share going to middle- and lower-income households shrank.
While short term deficit problems may be specific as outlined in the first CBPP report summarized above, it is the long term deficit and recessive economy which has its roots in more systemic issues. The second CBPP report on income disparity should be taken to heart, for there is the primary causal factor when an economy loses steam. One need not have advanced degrees in Economics to recognize that when the mass of the population hasn’t got the funds to participate in an economic system, that system is going down the tubes. Study history rather than idiotic theories of economic performance.
Once we get wages back to a few dollars a day full employment will be upon all of us!
I wasn’t suggesting that we replicate history, but that we should understand the events preceding significant economic events throughout history so that we might actually come to understand the relationships between economic catastrophe and its antecedents. Like feudalism collapses because there are not enough land owners who might spend on lots of stuff that a craft class might make. Then when 99.9% of the population are the serfs and they haven’t enough income to eat they die off or get killed off by some pandemic. Result? No one is left to tend to the baronial estates; plant, reap, armor up, rape and pillage, etc. Once again collapse of the economic system.
It takes a lot of spending to generate a lot of working which in turn generates a lot of earning which in turn generates a lot of spending. And on and on. Too much gelt in one pocket is a serious drag on the spending, working and earning cycle. Income does not stretch to the infinite horizon. Too much to too few makes far too little to far too many. Uh oh, there goes the economy.
amateur
maybe not even then. the trick to maintaining low wages is to maintain a large class of unemployed.
jack
i think you have the key, but a couple of things need to be made clear. such as, are the poor really poor or do they just have less than the rich? does this lead to social unrest anyway. does “growth” in the economy really make us better off, or could we learn to live with about what we have now, making room for interesting changes by spending less on stuff we don’t really want any more?
linda
once again, i agree with your feelings about this,but i am not so sure about the logic. some of your comparisons were a bit bogus. the fact that a rich persons income goes up by more than the entire income of a poorer person really doesn’t mean anything, unless you think envy is good for people (but see Jack, it could be bad for a country).
the fact that the rich get richer is not (necessarily) a problem. and you do not show that the poor are getting poorer… except in comparison to the rich. as long as the poor can have a reasonable standard of living i can think of no reason why society needs to worry that the rich are getting richer.
of course, there might be a reason. wealth, after all, is mostly about perception of wealth (once basic needs are met), and that might have important consequences to social order and how people feel… not unimportant.
but i would be more inclined to look to ways to get the poor to make more money, or work less in order to have more time for real life, than to look for ways to “tax the rich” to “give to the poor.”
that is, once the poor have decent health care, housing, and jobs they don’t hate.
then i’d go back and talk to Jack about the ways filthy rich hurts the rest of us.
certainly the fact that rich people are so lost in greed that they need to cut Social Security is at least a symptom of a society going insane.
Of course, had all quintiles shared equally in the income growth instead of having spending lag for 95% of the population, the overall rate would have been a lot higher than 55%. The whole is greater than the sum of its parts.
Coberly, we know that the poor are getting poorer in absolute terms — and most of the middle class, too — because the cost of housing, healthcare and higher education have gone up much faster than their incomes. There is really no point to your theoretical observation about the poor only getting poor in relation to the wealthy. When even the poor (the lowest quintile) can easily live in nice housing, send their kids to college, take nice vacations every year, provide for comfortable retirements and have no fear of losing their life’s savings due to a health problem — in other words, when they are no longer poor or under threat of becoming poor — we can talk again.
Hell, even Alan Greenspan agreed that the growth of inequality this country has seen is not healthy. It should not be a partisan issue.
“It should not be a partisan issue.” Urban.
It’s not. Both parties have totally ignored the issue. Have you read anything that has given the slightest hint that gross income disparity is a primary operative factor in keeping the economy in the doldrums? Has any elected official come out strongly in favor of pre-Reagan tax levels for the top percentile ranks in earned income. And I mean all income whether earned through investment or work. No, no, and no. Neither party seems at all concerned that 97.5% of economic participants are suppporting the top 2.5% of economic participants.