The growing income gap, stalled economic growth, and financial deregulation
“The idea that people make the same or less today than they made 40 years ago is a stunning historical fact.” — Author Jeff Madrick
NPR: As income gap balloons, is it holding back growth?
“This inequality is destabilizing and undermines the ability of the economy to grow sustainably and efficiently,” [Fed governor Sarah Bloom Raskin] said. Income inequality, she continued, is “anathema to the social progress that is part and parcel of such growth.”
The income gap in the United States has ballooned: It’s wider than any time since 1928, in the days before the stock market crash triggered the Great Depression.
[…] “In the 1970s, there was an assault on government oversight and regulation,” Madrick tells Raz. “And eventually, the financial community stopped playing by the rules. There was an economic theory that kept justifying what they were doing. And the American public was not fully aware of what was going on.”
The traditional argument for deregulation states that those policies make America richer, and that a rising tide lifts all boats.
But Madrick says that for the typical American worker, the wage tide has gone out since 1969.
“The typical male worker makes less today, discounted for inflation, than the typical median worker made in 1969,” says Madrick. “The idea that people make the same or less today than they made 40 years ago is a stunning historical fact.”
[…] “[Bank failures] peak up in crisis years. They peak in the 1920s,” [David Moss, a professor of economics at Harvard Business School] tells Raz. “But then most striking, after 1933, when we saw the introduction of federal banking and financial regulation, these banking crises disappear almost completely. And then it continues very, very low until the 1980s, then they pick back up again.”
Moss found it striking that banking failures go down after financial regulation and start rising after the introduction of deregulation.
Then, one of Moss’ colleagues showed him a chart of income inequality over the same period. Moss took that curve and plotted it on the same page as his bank failure curve.
“And lo and behold, it was a striking, striking connection,” Moss says.
As bank failures went up in the 1920s, so did income inequality. As inequality came down in the 1930s, bank failures stayed down. They stayed down together until the advent of deregulation in the 1980s.
For Moss, this coincidence raises more questions than it provides answers. He isn’t sure what exactly the correlation between income inequality and financial failure means.
So there’s an historical correlation that financial regulation might be one of the best things that could happen for creating economic growth and closing the income gap? Maybe that’s because government regulation and oversight actually keeps financial institutions more honest and accountable than fictional concepts, such as some “invisible hand” guiding everything or Reagan’s “trickle down” fallacy. Maybe it also helps ensure that individuals in financial institutions won’t gamble away everyone else’s money on things like sub-prime mortgage loans while they walk away with their own fortunes intact.
And I’m not even bringing up the 10.5 years of tax breaks for the job creators wealthy here, or that the wealthy compounded their fortunes during a time of economic loss for everyone else. They work harder than us, right?
It’s almost TOO SIMPLE. That must be why the Tea Party base sides with millionaires like the Koch brothers to protest “big” government and regulation and expiring Bush’s tax cuts for the rich. Because they’re morans.
- The gap in income between the wealthiest Americans and all others has grown strikingly in recent decades, the CBO data show. In 1979, when the data begin, the average after-tax incomes of the top 1 percent of households were 7.9 times higher than those of the middle fifth of households. By 2007, top incomes were 23.9 times higher than those of the middle fifth — a more than tripling of the income gap.
![Top 1% of taxpayers receive more income than entire bottom half combined
From the Center on Budget and Policy Priorities:
Tax policy should lean against the rising tide of income inequality, not exacerbate it. During the first three decades after World War II, economic growth was robust and widely shared: economy-wide productivity improvements were accompanied by significant increases in the living standards of most Americans. In recent decades, by contrast, the benefits of economic growth have not been widely shared. CBO data show that between 1979 and 2007, the average after-tax income of the top 1 percent of Americans grew by 281 percent, after adjusting for inflation, compared to just 25 percent for the middle 20 percent of Americans, and 16 percent for the poorest fifth of the population.[13]
The tax cuts enacted in 2001 and 2003 provided the largest benefit to the highest-income households and widened these yawning income disparities. Under these tax cuts, households with incomes over $1 million stand to receive an average tax cut of $130,000 in 2012, according to the Tax Policy Center, equivalent to an increase of 6.3 percent in their after-tax income. Meanwhile, households in the middle of the income spectrum will receive tax cuts that equal 2.3 percent of their income. Households in the bottom quintile will receive an average increase in income of less than 1 percent. [14] (See Figure 3.)
Summary: after tax incomes from Bush’s tax cuts:
Households > $1 million: increase of 6.3%
Households in middle income: increase of 2.3%
Households in bottom quintile: increase of < 1%
The GOP has been actively engaged in bottom-to-top income redistribution. And because of God, guns, and gays, the fundamentalist teabaggers will vote for it — despite their own precarious financial situation.
Want it to stop? Vote next time.
via: @allisonkilkenny](http://25.media.tumblr.com/tumblr_ls8izzgJmx1qf10tro1_400.jpg)
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Let’s talk about how our lost income has trickled UP the ladder in the past 30 years
And let’s discuss it loudly, out in the open — despite where Mittens would prefer people talk — and especially since he’d like to double Bush’s tax cuts for the richest of the rich.
What Romney Doesn’t Want You Talking About — Except In ‘Quiet Rooms’
Too bad for Mitt Romney. Turns out income inequality — that thing he claims has no place in our political debate, or anywhere outside of “quiet rooms” — will be a central theme of President Obama’s re-election message. We know this because one of his top economic advisers essentially claimed as much in a public address at a top DC think tank on Thursday morning.
And the data he brought to the table suggests Democrats will have an easy time making their case
“[W]e can’t go back to the type of policies that exacerbated the rise in inequality and threatened economic mobility in the first place if we want an economy that builds the middle class,” said Alan Krueger, chairman of President Obama’s Council of Economic Advisers. […]
Thirty years ago, the U.S. underwent a shift — from an economy that grew in a way that lifted all segments of society, to an economy that gives heavy preference to the wealthy. That’s the broad story of the last three decades, but as Krueger pointed out, policy has a role to play. The trend abated temporarily in the 1990s, when the country returned to an era of fairly uniform income growth distribution. That all changed for most people, and their lost income has instead trickled up the ladder. Read more…
Does looking at that graph above inspire “envy” in you — or anger? I don’t think envy means what Romney thinks it means.
Related:
Mitt Romney’s “politics of envy” (i.e. bottom to top income redistribution via tax laws)](http://24.media.tumblr.com/tumblr_lxswomhYhu1qf10tro1_500.png)
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Marginal Tax Rates and Wishful Thinking
At least since Calvin Coolidge, politicians have trumpeted the supply-side benefits of cutting marginal income tax rates. Lower rates will unleash economic growth and the cuts will largely pay for themselves — or so it’s often said. Yet careful studies find little evidence of such effects. Perhaps it’s time to reform tax policy based on facts, not worn-out assumptions…History shows that marginal federal income tax rates have varied widely…If you can find a consistent relationship between these fluctuations and sustained economic performance, you’re more creative than I am. Growth was indeed slower in the 1970s than in the ’60s, and tax rates were higher in the ’70s. But growth was stronger in the 1990s than in the 2000s, despite noticeably higher rates in the ’90s…If moderate increases in marginal rates wouldn’t much affect behavior, a mix of rate increases and cuts in tax expenditures might be a sensible path. […] Finally, income inequality has surged in recent decades. Raising marginal rates on the wealthy is a straightforward, effective way to counter this trend, while helping to solve our looming deficit problem. Given the strong evidence that the incentive effects of marginal rates are small, opponents of such a move will need a new argument. Invoking the myth of terrible supply-side consequences just won’t cut it.](http://25.media.tumblr.com/tumblr_m14xw5EqD91qf10tro1_400.jpg)
