Krugman: A Permanent Slump?
Spend any time around monetary officials and one word you’ll hear a lot is “normalization.” Most though not all such officials accept that now is no time to be tightfisted, that for the time being credit must be easy and interest rates low. Still, the men in dark suits look forward eagerly to the day when they can go back to their usual job, snatching away the punch bowl whenever the party gets going.
But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?
You might imagine that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream. In fact, the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between — was made forcefully recently at the most ultrarespectable of venues, the I.M.F.’s big annual research conference. And the person making that case was none other than Larry Summers. Yes, that Larry Summers.
And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time.
http://mobile.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html
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The CBO published a good report about the change in income distribution from 1979 to 2008 showing that the top 1% increased their share from approx 7.5% to about 17% (a doubling), while the middle three fifths of the income groupings went from about 50% down to 43%. THe lowest quintile's share went from about 7% down to about 5%.
http://www.cbo.gov/publication/42729
Share of Total After-Tax Income by Income Group
CNN published an article in sept on income distribution - away from the middle to the top few %:
http://money.cnn.com/2013/09/17/news/economy/poverty-income/
Median income was $51,017 a year in 2012, down from $51,100 in 2011 and down from $56,545 in 2007 92007 dollars)
... median household income fell slightly to $51,017 a year in 2012, down from $51,100 in 2011 -- a change the Census Bureau does not consider statistically significant.
But taking a wider view reveals a larger problem: Income has tumbled since the recession hit, and is still 8.3% below where it was in 2007.
"We've had [economic] growth, but it hasn't really reached everyday Americans," said Elise Gould, an economist at the left-leaning Economic Policy Institute. "It's a lost decade, maybe more."
This long-term decline in income is troubling to economists, especially as the middle and lower classes have fared considerably worse than the rich. Since 1967, Americans right in the middle of the income curve have seen their earnings rise 19%, while those in the top 5% have seen a 67% gain. Rising inequality is seldom a sign of good social stability.
...By the way, a 19% gain over 45 years comes to an annual compound rate of gain of 0.387%.<--- that's 4 Tenths of a percent, rounded.
The article points out that 15% of Americans are now living in poverty. This is hardly the way to produce demand for the things businesses want to sell. In such an economy growing businesses and adding new jobs is pretty tough to pull off.
want the economy to grow? Put more money in the hands of the people who will spend it: the poor and middle income people. Then you'll see all the demand the businesses can handle. they will sell so much product they will have to hire on more people to make the products, sell them and service them. This will lower unemployment and with more people being employed, demand will grow even more -- - and THEN you'll have reason to worry about inflation - the best of reasons to worry about inflation - full employment and plenty of demand for businesses to try to keep up with. People employed and happy, businesses making money and happy.
... in other words the opposite of this Republican Dystopia: Republican caused depression, Republican austerity caused feeble recovery from said depression).
How do you get more money into the hands of those who will spend it and thus give us a stronger growth, bigger economy?: by setting a living-wage minimum wage and rectifying inequities in the tax code (e.g. the carried interest provision).
take a look at the table of income tax rates over the years shown at the link to Wikipedia.....
http://en.wikipedia.org/wiki/Income_tax_in_the_United_States
You'll see that under Reagan the top income tax rates for the top bracket went from 70% down to 28%, then in 1990 in the Omnibus Budget Reconciliation Act of 1990, Reagan was forced by Democrats to accept an increase in the top tax rate for the top bracket to 31%. For the bottom bracket when Reagan came in the rate was 14%. He lowered that rate to 12%, then 11% before increasing it (1988) to 15%. HIGHER than when he came into office.
Clinton came in with the top rate for the top bracket at 31%. Clinton raised it to 39.6%. Bush came in, lowered the top bracket's top rate to 35%, lowered the lowest bracket to 10%. The Bush tax cuts started the greatest increase in public debt since WWII ("Deficits don't matter"
- and it was not a recession or a depression (yet) (where common sense and Keanesian economics, tells you deficit spending is needed to create demand and boos the economy out of the recession/depression). Obama came in in the midst of the Trickle Down Deregulation disaster and as part of the American Taxpayer Relief Act of 2012 elevated the top rate for the top bracket back to 39.6% (against enormous opposition by the Repugnants) and left the lowest bracket rate at 10%.
But this is only part of the picture. Under Reagan the number of brackets was reduced from 16 to 2 - yes, that's right "2". This gave the highest earners an enormous break - especially the 1% - and made the tax system much much more regressive. This is what destroys an economy because it produces what we see now: enormous concentration of wealth at the top end. And what does this do? It leads to lower and lower demand for the products companies would like to sell. The super wealthy just do not spend the percentage of their vast incomes that moderate income and poor people do (they, i.e. "we", HAVE to spend most of our incomes just to survive). Thus, you get poor economic growth, poor job creation and stubbornly high unemployment. It was this trick by the Republicans, under Reagan's leadership, that produced the situation Warren Buffett sited as bad for the country of him, a billionaire, paying at a tax rate no more than his secretary paid. This is not only ethically abhorrent - it actually is economically stupid policy.
This is what lead Bush to run deficits and use recklessly expansionist monetary policy (husbanded by the ever cooperative Mr. Magoo at the Fed) to hold off a recession (because the 'little' people just were not earning enough to buy enough products to keep employment up - without making money very cheap to borrow). The reckless revenue and monetary policy combined with deregulation of Wall Street and defense of predatory lenders brought about the Trickle Down - Deregulation disaster.
.. note that the income tax rates shown at the link in wikipedia do not show the impact of payroll taxes which makes the tax system far more regressive than just looking at income tax rates would have you believe.