From a research paper by Cambridge University professor of economics, Gabriel Palma.

And third, that within an overall trend of rising inequality, there are two opposite distributional forces at work. One is ‘centrifugal’, and takes place at the two tails of the distribution—leading to an increased diversity across country in the shares appropriated by the top 10 percent and bottom forty percent. The other is ‘centripetal’, and takes place in the middle—leading to a remarkable uniformity across countries in the share of income going to the half of the population located between deciles 5 to 9. Therefore, globalisation is creating a situation where virtually all the within-nation distributional differences are the result of what the very rich and the poor are able to appropriate. In turn, it seems that regardless of the political settlement at work current distributional outcomes are characterised by half of the population (located in the middle and upper-middle of the distribution) acquiring strong ‘property rights’ over half of the national income. The other half, however, seems to be increasingly up for grabs between the very rich and the poor. And if what really matters in distributional terms is the income-share of the rich—because the rest ‘follows’ (middle classes able to defend their shares, and workers with ever more precarious jobs in ever more ‘flexible’ labour markets)—everybody attempting to understand the within-nations disparity of inequality (including myself) should always be reminded of this basic distributional fact following the example of Clinton’s campaign strategist: by sticking a note in our notice boards saying “It is the share of the rich, stupid”.

Beezer here.  Bottom line is that in-country, the gains or losses in income come from either the bottom 40% of the population or the top 10% of the population.   The middle 50% appears to be more stable and can defend it’s income and property rights.  In the United States over the past 30 years, however, the big income and wealth gains have gone not just to the top 1% but even more so to the top 0.01%–only about 15,000 families.   And it also appears that the normally ‘safe’ families in the 50% are getting nicked as well, thus the complaints of a disappearing ‘middle class.’

Continuing.  From a post by economist Bradford DeLong, UC Berkeley.

For the second dimension of inequality let me turn to the United States and to the coming to the United States of what we now call the Second Gilded Age.

We used to have a framework for understanding the time dimension of inequality in the United States: we called it the “Kuznets Curve”. The United States starts out as a country that is relatively equal–at least among white guys who speak English. Free land, lack of serfdom, the possibility of moving the west if you don’t like the wages you’re being offered in the east–all of these produce a middle-class society. Then comes 1870 or so, and things shift. The frontier closes. Industrial technologies emerge and they are highly productive and also capital intensive. So we move into a world of plutocrats and merchant princes: people in the cities, either off the farms or from overseas, competing against each other for jobs. And we get the extraordinarily stark widening of American income inequality up until the mid-1920’s or so.

This then calls forth a political reaction. Call it progressivism, call it social democracy, call it–in Europe–socialism. The idea is that the government needs to put its thumbs on the scale, heavily, to create an equal income distribution and a middle class society. Progressivism and its candidates are elected to power in democratic countries in the North Atlantic in the twentieth century–in spite of everything you say about Gramsci and hegemony and the ability of money to speak loudly in politics. Thus from 1925 to 1980 we see substantial reductions in inequality in the United States–the creation of a middle-class society, at first only for white guys and then, gradually, for others.

In 1980 things shift again. Since 1980 we have had an extraordinary explosion of inequality in the United States. This explosion has taken place along two dimensions.

First, we have seen extraordinarily rapid growth between the top twenty percent and the lower eighty percent. The benefits to achieving a college education skyrocket–for reasons that I don’t really have time to go into, and for reasons that are still somewhat uncertain.

Second, we have an even larger explosion of inequality between the top .01 percent, the top 15,000 households, and the rest of the top twenty percent. This second explosion is the most puzzling and remarkable feature of the past generation. It puts the American political system under substantial long term threat, if only because equality of opportunity in the next generation will require substantially greater equality of result in this generation than we see today: a world in which Republican presidential candidate Mitt Romney puts his wealth into a blind trust but that blind trust then decides just as a matter of chance that what it should fund is Tagg Romney and he then raises money from interests that want the Romney clan to think well of them. That is not a society fulfilling a democratic commitment to equality of opportunity, not at all.

Beezer here.  We just had the re-election of President Barack Obama who made it very clear he believes the wealthy should pay more and his budget proposals call for raising the top two tax rates back to where they were under President Clinton, modestly raising the capital gains tax rate of 15% to 20% at minimum, plus putting dividend income on the same rates as those paid by wage earners.  Yet Republicans still refuse to even consider raising any tax rates. 

It appears an economic study projecting slow growth for a long, long time, done by Northwestern professor Robert J. Gordon, is making the rounds in economic circles.  Enough so that it’s now reached the New York Times, in an article entitled ‘No More Industrial Revolutions,’ written by NYT editor Thomas Edsall.  Basically the study questions whether the pace of innovation we’ve enjoyed for more than 250 years can continue.   It contains the following chart.

The blue line is when Great Britain led the surge, the red line from when the United States took over the lead.   Using this data, Gordon projects the trend further out and arrives at this dismal chart.

Beezer here.  Edsall takes the study’s basics and then moves over into current politics, suggesting that Republicans realize there’s a downward trend and thus are ferociously locking in the gains of the wealthy in preparation for a dismal future.   It’s all a bit much, in my opinion.  First, the innovations Gordon cites were unlocked in no small part by a democratic political revolution that stresses individual freedoms.  Turning back from that democratization of economies is unlikely to be reversed, nor should it be.  Second, the Republicans are simply acting to protect their wealth.  That’s as old as dirt and will never change.  The difference this time may be that, temporarily at least, they may exert enough political power to lock in their gains.  The problem with that kind of victory is that it damages economic growth and eventually the democratic process reverses those gains in order to re-invigorate growth.

As reported on by the New York Times’ economics reporter David Leonhardt.

My Capital Ideas column in this week’s Sunday Review mentions a new report from the Congressional Research Service — a nonpartisan government group that provides analysis to Congress — on the relationship between tax cuts and economic growth.

We have posted the report. The conclusion is below:

The top income tax rates have changed considerably since the end of World War II. Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The average tax rate faced by the top 0.01% of taxpayers was above 40% until the mid-1980s; today it is below 25%. Tax rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the end of the second World War.

The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.

Beezer here.  No surprise here for this author.  The only thing left out of the report is another strong correlation:  Cuts in top marginal rates do aggravate deficits.  Not that deficit spending is all bad because it’s not.  Deficit spending that’s not aimed at the economy but is just boosting random spending or what I’ve called undifferentiated spending or saving, is a waste of a good deficit.

The argument over whether or not we can afford Social Security is becoming unanchored from reality.  The cited deficits are imaginary under almost any real world scenario.

From Dean Baker over at the Center for Economic and Policy Research, some common sense arithmetic.

“The projected shortfall in 2033 is $623 billion, according to the trustees’ latest report. It reaches $1 trillion in 2045 and nearly $7 trillion in 2086, the end of a 75-year period used by Social Security’s number crunchers because it covers the retirement years of just about everyone working today.”

To make sense of these numbers it would be necessary to know how large the economy is projected to be in 2033, 2045, and 2086. GDP in these years is projected to be approximately $41 trillion, $72 trillion, and $440 trillion. Providing these GDP numbers would have allowed readers to put these projected deficit figures in some context.

If the Globe was interested in conveying information instead of pushing its agenda for cutting benefits it might have told readers that the tax increase needed to keep the system fully funded over its 75-year planning horizon is just over 5 percent of projected wage growth for the next 30 years. (This is using the Social Security trustees projections. It would be less than 4 percent of projected wage growth using the projections from the Congressional Budget Office.)

While many readers would point out that most workers have not been seeing wage growth in recent decades, that complaint would highlight the absurdity of the Globe’s piece. The upward redistribution of income over the last three decades has done far more to hurt the living standards of ordinary workers than any possible tax increases associated with Social Security.

Beezer here.  Just another negative effect of the income inequality trend of the past 30 plus years.  So let’s give Mitt another tax break, shall we?  Why can’t we have a better press corps?

For people like me who find Washington’s acceptance of high unemployment puzzling, Jonathan Chait has a nice column explaining why.  Chait is a senior writer for the New York magazine.

..The recovery looks safe for those of us who are not already screwed. That, sadly, has come to be the primary focus of our economic policy…

It’s important to respond to arguments on intellectual terms and not merely to analyze their motives. Yet it is impossible to understand these positions without putting them in socioeconomic context. Here are a few salient facts: The political scientist Larry Bartels has found (and measured) that members of Congress respond much more strongly to the preferences of their affluent constituents than their poor ones. And for affluent people, there is essentially no recession. Unemployment for workers with a bachelors degree is 4 percent — boom times. Unemployment is also unusually low in the Washington, D.C., area, owing to our economy’s reliance on federal spending, which has not had to impose the punishing austerity of so many state and local governments.

I live in a Washington neighborhood almost entirely filled with college-educated professionals, and it occurred to me not long ago that, when my children grow up, they’ll have no personal memory of having lived through the greatest economic crisis in eighty years. It is more akin to a famine in Africa. For millions and millions of Americans, the economic crisis is the worst event of their lives. They have lost jobs, homes, health insurance, opportunities for their children, seen their skills deteriorate, and lost their sense of self-worth. But from the perspective of those in a position to alleviate their suffering, the crisis is merely a sad and distant tragedy.

From the Center for American Progress.