Both left and right seem to agree about one thing: rich people tend to invest more, and consume proportionally less than middle class or poor people do.
This is the right's argument for tax cuts for the rich: it lets them invest more, and that creates jobs.
It is also the left's argument for various kinds of stimulus spending like unemployment extensions: get the money into the hands of people without money, who have to consume. It is demand that our economy needs now, not supply.
What if both sides are right? What if we need both supply and demand to have a healthy, churning economy? What if we need enough capital concentration to loan and invest into new business and innovation, but we also need enough wealth distribution to have a healthy consumer class to provide demand?
How could we test such a notion? Well, what maladies would we expect in an economy without enough demand? Low interest rates because there is a lot of investment money available. However, without enough demand, there is not enough production, thus not enough jobs, which viciously circles back into not enough demand. Too many people saving, not enough spending. In other words, the zero bound.
What maladies would we expect in an economy without enough capital concentration? Very high interest rates impinging business formation, leading to lower employment. Too much demand chasing not enough goods, leading to inflation. And inflation discouraging saving and lending, which vicious circles back into lower business investment. In other words, stagflation.
Does inequality have any corelation with these maladies? Well, yes.

As you can see, peaks of inequality seem to coincide perfectly with the Great Depression and the Great Recession. And the lows of inequality seem to coincide with the stagflation of the 70s and early 80s. Can we see co-relations with interest rates too? Well, sure:

Admittedly, there is a lot more going on here than just inequality... monetary policy, trade flows, foreign investment, etc. I do not mean to identify a single driver of events -- the world is not that simple. What I do mean to suggest is that maybe as a society we need to go back to a happy medium, when there was enough wealth concentration to provide investment, but also enough wealth distribution to provide a consumer class. Perhaps there is an optimum level of inequality for a healthy economy.


Your economy is very different
(#283245)to other rich countries in that it is not significantly export-driven, exports are less than 15% of your economy. Whereas most other large economies (except, curiously, Japan) are at least twice that.
literally anything can become right or wrong if the dominant class of the moment so wills it
That's true
(#283246)Other countries are probably not as dependent on consumption as we are... it's about 70% of our economy.
"I don't want us to descend into a nation of bloggers." - Steve Jobs
On your first chart
(#283252)the "lows of inequality" seem to run from 1955 - 1987. while there was stagflation towards the end of that period caused by external supply shocks in petroleum, the overall economy during that period was far stronger than the periods before and after.
I blame it all on the Internet
1859 was a great year for science (deniers too)
(#283281)1859 was a great year for science. It was the year when Charles Dickens published "On The Origasm of Species" wherein he introduced the theory of natural selection. It was also the year when John Tyndall proved the Greenhouse Effect. I remember a lot of discussion about pigeons in the book on evolution, and nothing about the origin of homo sapiens. Still the public were quick enough to pick up on the implications of the theory and denial was immediate and strong enough to last until today. With Tyndall's theory the implications of it on humans and their behaviour have been much slower in coming, but Greenhouse denialism today arguably outweighs that of evolution. While denial of evolution is now the province of cranks and religious fanatics, denial of the Greenhouse Effect is mainstream. Despite the warnings of scientists about the effect on the atmosphere of the gases Tyndall investigated, G20 heads of state, meeting recently to discuss problems facing the world today made no mention of the problem, apparently in the belief that economic problems could be solved and the 'health of the economy' could be seen to without any consideration of the state of the environment. It's as though the economy were in a box in a room, and as long as we closed the flaps on the box, whatever happens in the room has no bearing on what goes on in the box...
Deniers or evolution have their faith in god, and are skeptical about the claims of science. What's your excuse?
You will kill 10 of our men, and we will kill 1 of yours, and in the end it will be you who tire of it. - Ho Chi Minh
"What's your excuse"??
(#283294)Umm ... too busy laughing at your post (# 283281)???
laugh while you can, monkey boy
(#283341)I always try to leaven my posts with humour but scientists tell us that by 2050 some 30% of species in the planet will face extinction. They also say this can be substantially averted if the atmosphere returns to pre-industrial levels of greenhouse gases. The measures that the diarist is calling for here, more jobs, more industrial development, are suicidal - they will aggravate the problem of climate change.
You will kill 10 of our men, and we will kill 1 of yours, and in the end it will be you who tire of it. - Ho Chi Minh
The Origasm?
(#283344)I think your spell checker did you no favors.
As to your point, I am not sure Wagster is actually suggesting a particular mode of economic activity. Goods and services are not necessarily industrial products. A song downloaded from iTunes is a good, but has a very light carbon footprint.
Economic activity could even be carbon negative. I agree that the G20 is a bunch of good-for-nothing leaders with their heads in the sand.
But I must once again insist that there are economic modes available to us that do not require living in cave and do not require tearing up the planet, at the same time. The problem with these modes is not that they are not viable, it's that the owners of existing unsustainable modes have very strong political power.
The road to environmental balance does not lie in loss of economic activity and poverty. Quite the opposite, since the poor don't give a turd about the environment. The road to environmental balance is reached through the right economic activity, including quite a bit of effort at remediation of existing damage.
I am not a pessimist. I am an incompetent optimist.
Better had been than Green
(#283367)I pretty much agree with you. Nothing would be easier to get to 0 emissions. We would simply have to plunge the people of the world into abject poverty. The trick of the matter is to decrease emissions while not falling below a certain level - hopefully a level that is an improvement for some 2 billion people who currently live on less than $US2 a day. That's where the leveller in me starts to salivate. "Make the Rich pay" as the old slogan for the Canadian Communist Party went. (I know Communists or leftists are not to be equated with environmentalists; Mao Zedong and Pol Pot shared, among much else, with our dear M. Scott Eiland, the habit of calling song birds "parasites" and "deadbeats" etc, and promulgating their elimination for economic expediency.) Groups like Ofaxm are tying economic justice and climate issues into one bundle and it doesn't look good for the wealthy nations.
"Better dead than Red" was the slogan that united America in the cold war, when the consumerist ideology was under threat. Now "Better had been than Green" might be a replacement if it didn't have to resort to such a potentially confusing grammatical tense constructions. To answer my own question: "What's your excuse (.. for denying the climate implications)? It comes down to a preference of extinction to losing the nation's place at the top of the international pecking order. It worked back then in the cold war, and with only a slight shift toward to blue end of the spectrum, it's working now, today.
You will kill 10 of our men, and we will kill 1 of yours, and in the end it will be you who tire of it. - Ho Chi Minh
Indeed. Our coal consumption is literally breathtaking
(#283347)and where is it going to end, this blind following of the consumption-exploitation-jobs conveyor?
We cannot even bank on our traditionally reliable inefficiency to deliver us from unfavorable environmental impacts of industrialisation.
literally anything can become right or wrong if the dominant class of the moment so wills it
Wagster, you are misinformed.
(#283380)@ "This is the right's argument for tax cuts for the rich: it lets them invest more, and that creates jobs."
No, no, no. That is a *utilitarian* argument for "tax cuts for the rich."
Utilitarians are neither right nor on the right. They are just a slightly smarter breed of leftist.
.Divine Spinoza, forgive me. I have become a fool.
It's only utilitarian
(#283384)if you accept the right wing premise, which is the point he was making.
I blame it all on the Internet
It's Utilitarian. . .
(#283386). . .because it implicitly accepts the premise that confiscatory tax rates are justifiable to pay for the welfare state, and that refraining from doing so is only justifiable if it actually results in more efficient use of that which is confiscated.
The universe may well have been created without a point--that doesn't imply that we can't give it one.
All taxes are confiscatory
(#283387)You aren't adding anything to the discussion.
"Something I think most liberals don't understand is exactly how stupid many conservative leaders are." - Matt Yglesias
That's A Deeply Stupid Comment
(#283388)Color me unsurprised.
The universe may well have been created without a point--that doesn't imply that we can't give it one.
Until you say what are "confiscatory rates"
(#283390)and why -- which you've never done despite using the phrase many, many times for years now -- it's starting to look like spartacvs is accurately characterizing your position.
I've Stated My Definition Repeatedly
(#283394)A Readers Digest version:
--any combined marginal rate of over 50%;
--any inheritance taxes that exceed the highest rate on earned income;
--any taxes specifically levied because someone thinks that someone else shouldn't have that much money.
Other taxes could be confiscatory as practiced rather than per se depending on enforcement (for example, harsh penalties for cases involving honest error or actually following the advice of the IRS when it is in error).
I'd also say that passing government programs that will clearly cost more over time and will demand greater and greater tax burdens to support would constitute premeditated intent to commit confiscatory taxation.
The universe may well have been created without a point--that doesn't imply that we can't give it one.
"someone else shouldn't have that much money"
(#283396)Well said. The other side always has too much!
I accept the Western Christian view that money isn't everything, or even the most significant thing, but one side does seem to have, if not "too much", then at least a bit more than the other.
More than half the world's population live on less than $2/day. Not that that is, in itself, particularly important, but facts should be inserted into the discussion.
literally anything can become right or wrong if the dominant class of the moment so wills it
As Ben Franklin said
(#283414)And that's coming from the only President of the United States who was never President of the United States.
I blame it all on the Internet
Thanks. . .
(#283415). . .but I decided long ago not to take Ben Franklin's advice on economics or sex--and he certainly lost that fight when the Constitution and Bill of Rights were written.
The universe may well have been created without a point--that doesn't imply that we can't give it one.
Well sure
(#283416)I can understand why a modern Republican would have a problem with someone who believed in civic virtue.
I blame it all on the Internet
Funny How. . .
(#283417). . ."give up everything that we think is too much or leave society" translates as "civic virtue" to liberals. Again, Ben Franklin lost that fight when the Constitution was adopted, and liberals aren't going to get their 50+% tax brackets back no matter how much they pine for them and call rich people evil for opposing them.
The universe may well have been created without a point--that doesn't imply that we can't give it one.
Actually a big enough war would do it,
(#283418)proving both that Franklin did get his way, and that the wealthy do everything in their power to see that their fellow citizens forget it in between moments of crisis.
M Aurelius was probably right.
Funny
(#283429)because I seem to remember that you oppose tax hikes of any kind, even when well below the 50% level.
I blame it all on the Internet
All sounds reasonable
(#283428)...until you get to the part about funding entitlements necessarily involving confiscatory taxation.
I guess in conservative world its ok to confiscate earnings from the plebs, spend that money on unecessary wars and tax cuts for the wealthy that do nothing to stimulate economic growth, then scream tyranny when said ill gotten gains have to be repaid to meet obligations.
Class war indeed.
"Something I think most liberals don't understand is exactly how stupid many conservative leaders are." - Matt Yglesias
OK
(#283435)So none of your worries about confiscation are a real possibility in 21st century US.
Mitt ROmney paid what - a 15% rate? The effective rate on wealthy people is well below 30% and falling. 50% isn't on the horizon.
So maybe you should re-orient toward worrying about other things - e.g., that the wealthy aren't just sucking up every penny of new wealth in this country, no matter who earns it, the wealthy are massively increasing their income while the average person is seeing her income decline despite being more productive.
In other words, what's good for the majority is *one* factor about appropriate tax policy. It *could* get out of hand if it was treated as the only factor to the exclusion of factors re: just compensation (I take it that's your point).
But in 2012 US what's good for the majority isn't remotely in danger of being over-emphasized, it's systematically being under-emphasized.
What stands in the way of you admitting that?
You're trying to make definition seem like principle
(#283556)You can't really argue with a definition... but it is arbitrary.
And your third item in particular is less than helpful... it's really impossible to ascertain motive to legislation, unless it cooperates and states it plainly.
"I don't want us to descend into a nation of bloggers." - Steve Jobs
New defintination for confiscate
(#283393)3: too high for your blood, it's what it is big momma, my momma didn't raise no dummy
----
Now I want to know how many libertarian types would support truly high progressive taxation rates as a consolation prize for the haves-gaming-the-system-to-regulate-their-way-to-riches state. There has to be some that think teh super rich have gotten where they're at by gaming the system in their favor, and are more concerned about that than other stuff. Maybe they're just to darn principled and sacrifice the lucky ducky poor and are dead set thinking two wrongs don't make a right.
"I’m to believe that North Korea is so dangerously unhinged that they would attack without warning – yet so meek and easily cowed that they will sit quietly and not retaliate when we start bombing them."
Major Kong
Whatever
(#283392)It's by far the most common justification given for tax cuts by self-identified conservatives.
The right is in fact deeply conflicted about utilitarianism. I'd estimate that fully 1/2 of all the arguments they give in public are that government is an inefficient and likely corrupt actor whose expansion will have bad effects for the majority.
Conservatives Use Utilitarianism. . .
(#283395). . .like an explorer in hostile territory uses a hired guide to make their way around--they don't necessarily like it much, but the need for a somewhat common language requires putting up with irritants.
The universe may well have been created without a point--that doesn't imply that we can't give it one.
?????
(#283400)conservatives use utilitarianism just like anybody else, it's just their assumptions about human behavior that are taken on faith rather than based on evidence.
I blame it all on the Internet
True Conservatives cannot be explorers, by definition.
(#283409)-
literally anything can become right or wrong if the dominant class of the moment so wills it
To a dyed in the wool conservative like Russell Kirk
(#283543)To a dyed in the wool conservative like Russell Kirk, most of these self-identified conservatives are just a species of authoritarian liberal.
I don't remember what if anything Kirk had to say about the appropriate level of taxation of income for the wealthy. I imagine him meditating on the nature of income (currency) and recognizing its need to flow to properly fulfill its place in the order of things. Attempts to stop this flow would be an affront to the conservative.
The correct answer to Vinteuil's objection is that 'rightists' have no objection to these taxes.
You will kill 10 of our men, and we will kill 1 of yours, and in the end it will be you who tire of it. - Ho Chi Minh
I still get vint's distinction.
(#283553)You can, independently, argue that a) taxing the rich is bad for the rest of us and/or b) taxing the rich is morally wrong because it violates the sanctity of property rights. The two arguments may, of course, shade into one another insofar as you can also argue that c) violating the sanctity of property rights is bad for all of us (which is why they are usually strongly embedded in the moral system.)
"Unfortunately the universe doesn't agree with me. We'll see which one of us is still standing when this is over." -- Eliezer Yudkowsky
But you are not making any headway
(#283555)But you are not making any headway here. You can, just as Adam Smith, argue that taxing the poor is stupid and bad for the rest of us. You can also argue that taxing the poor violates their property rights.
A conservative understands that there is an underlying order to the universe and that everyone and everything has its place in the hierarchy. A conservative knows there is property and there is property. Real estate is the foundation of an aristocracy and therefore a stable society. Money is meant to pass from hand to hand, and money first came into being to give people a means to pay their taxes. Property rights are all well and good, but appeals to the Rights of Man is Jacobin talk, and they sit better when they come from the left.
Much conservatism these days is actually 'objectivism' - the conservatism of narcissists. I know that Ayn Rand is probably the most revered thinker on the Internat these days, but to understand conservatism properly you have to understand its roots in the French Revolution.
You will kill 10 of our men, and we will kill 1 of yours, and in the end it will be you who tire of it. - Ho Chi Minh
I get your support for the rich, but I don't get
(#283589)vinteuil's support.
literally anything can become right or wrong if the dominant class of the moment so wills it
Maybe vint....
(#283631)...makes more money than you think he does. :^)
(Or possibly he is of the opinion that property rights are a moral issue, see B above, and so he backs them despite having no dog in the fight, so to speak.)
"Unfortunately the universe doesn't agree with me. We'll see which one of us is still standing when this is over." -- Eliezer Yudkowsky
The poor are more likely to consider property rights
(#283642)as a moral issue than the rich so the opposite is true.
In my experience, what the poor most want is a piece of land they can live in. Hence shacks, shanties and slums. The rich generally want the working class to live in rented accommodation where they can be evicted from if necessary, following death, disability or strikes.
IIRC, slaves in the US were not allowed to own property, get married etc.
literally anything can become right or wrong if the dominant class of the moment so wills it
Mmnn.....
(#283705)....that's just a matter of "property for me, rentals for thee". I'll guarantee you people with money consider their right in it as sacrosanct as your average favella-dweller would a clear title.
But note the "or" in my original post, I think you're missing the point: I said Vint may either have a great deal of money and wish to protect it (a personal utility argument, as it were) or may view it as a moral issue of property-right sanctity regardless of his personal wealth. Neither of these contradicts your statement, quite the opposite.
"Unfortunately the universe doesn't agree with me. We'll see which one of us is still standing when this is over." -- Eliezer Yudkowsky
"property for me, rentals for thee"
(#283737)how excellently put!
Lets leave vinteuil out of it, I'm sure he has his own reasons. But for those of us who want to get really wealthy, that is the way to go (as it has been for millennia).
literally anything can become right or wrong if the dominant class of the moment so wills it
Income inequality's effect on consumption
(#283437)Alan Krueger, Obama's chief economist, calculates that the 18% income shift toward the wealthy over the past 30 yrs. has removed at least 400 billion in demand, since the top 1% spend about 50%, while the bottom 99% spend 90% or more of their income.
So what is the optimal tax rate on the wealthy
(#283438)in terms of the overall economy?
Krugman last month discussed research that put it at 70%
You Know. . .
(#283446). . .for something that allegedly has no chance of happening, there seem to be an awful lot of liberals here and elsewhere (now including NOBEL PRIZE WINNER!!! Paul "Crazy Eyes" Krugman!) openly advocating for it. I think that calling conservatives complaints about it "paranoid" is officially relegated to "intentionally ignoring the evidence."
Oh, and Dr. Krugman? Regarding this little sneer? :
Theft! Tyranny! OK, I hear you. This can’t be argued on rational grounds; I think there are a lot more important moral issues in the world than defending the right of the rich to keep their money, but whatever.
You and your fellow moonbat looter scum in your comments section can go choke on the used socks from the Operating Without Soap crowd.
The universe may well have been created without a point--that doesn't imply that we can't give it one.
Such anger!
(#283447)Meanwhile the numbers suggest that "their" money actually consists largely of the productivity increases of American workers over the past thirty years or so.
But let's not let numbers and facts cloud the purity of our hatred for those who point out that the producers of wealth & the owners of wealth aren't necessarily the same people.
M Aurelius was probably right.
That wasn't a rational response
(#283448)Krugman said that respecting property rights isn't absolute, but rather one concern among many, and you told him to go choke on socks.
But all of this is academic. The point still stands that a 70% marginal rate, despite this little academic paper and Krugman's blog has precisely zero chance of happening in the US. We're currently in a 30+ yr. trend heading away from this that shows no signs of slowing.
Now why can't you address points that aren't academic? part of my problem with conservatives is they always emphasize the same potential problems, regardless of circumstance.
The wealthy are, in reality and not in academia, sucking up all the income in this country that many people helped produce; meanwhile the majority are seeing declines in their income despite massively increasing their productivity.
Add to that that effective tax rates on the wealthy are at their lowest in 80 yrs. and consumers in this economy have no money.
Sounds like a good time to raise taxes on the wealthy to me. Why don't you stop worrying about potential looters and moochers, etc. and look at the actual problems?
Neither Was Krugman's Sneer
(#283452)I'm not going to react politely to someone hiding behind his academic veneer to deliver naked advocacy of confiscatory tax rates while treating "by what right do you advocate this?" objections with contempt. As for whether my response is rational, given the cheerleading for OWS that went on in these parts not long ago, I'd say that a bluntly worded insult without any excretion, felonies, or vandalism should qualify as high oratory by comparison.
The universe may well have been created without a point--that doesn't imply that we can't give it one.
So could you address the point?
(#283454)I claim you're worried about low probability potential problems of confiscation from the rich that aren't happening.
Why aren't you worried about actual, systemic, and longstanding problems re massive wealth concentration into the top 1% and actual wealth extraction from the lower classes?
How many different ways can I say it?
Weasel words
(#283757)You're making the word "confiscatory" do a lot of heavy lifting here. The wealthy obtain the most advantage from government actions and policies. The least they could do is be grateful and pay their goddamn share for the system that has allowed them to become absurdly wealthy.
Several of my friends are in the 1% and I never manage to feel any sympathy for their woes. Perhaps if they weren't paying $100k per year in private school tuition they wouldn't have to contemplate buying out the lease on their 3 year old car to get by.
--- I will not be pushed, filed, stamped, indexed, briefed, debriefed, or numbered. My life is my own.
"Fair share" is a weasel phrase, too.
(#283763)If we were talking about a market solution, you'd look at the wares on offer and decide if it was worth what they wanted to charge you. In the political model, you start with the unwarranted belief that it's all basically worth it. Case in point, the black-hole-for-money that is the Newark school system; no "fair share" would ever be enough, it's craptastic.
"Unfortunately the universe doesn't agree with me. We'll see which one of us is still standing when this is over." -- Eliezer Yudkowsky
I thought I might find you here
(#283778)One thing that I admire about you is that you make no bones about your FU-IGM philosophy. It's refreshing, really. Now that I've buttered you up a bit, let me take you down a notch.
We are largely discussing federal tax rates, which as I am sure you are aware are currently at historic lows. I feel pretty comfortable asserting that "fair share" is far more defensible than "confiscatory" in this discussion. It's pretty trivial to show that overall economic outcomes were better with significantly higher marginal tax rates than we have now and the utility of marginal dollars drops off pretty quickly. Forbes is claiming that incomes over $50k don't make people any happier. I'm not sure I believe the number is that low, but the overall point is sound.
As far as your non sequitur of an example, the performance of Newark's schools is so wrought with externalities it's outcomes are unlikely to correlate with financing. Having said that, it is still the responsibility of all citizens to provide educational opportunity to even the least among us. I make this entirely as a utilitarian argument, as I hold no more capacity for empathy than you do.
--- I will not be pushed, filed, stamped, indexed, briefed, debriefed, or numbered. My life is my own.
I'm lazy
(#283463)at what point does this 70% rate kick in?
"I’m to believe that North Korea is so dangerously unhinged that they would attack without warning – yet so meek and easily cowed that they will sit quietly and not retaliate when we start bombing them."
Major Kong