Prebuttals

by Henry on August 4, 2011

Matt Yglesias responds to Chris’s post below, by suggesting that British “lefties”’ criticisms of New Labour’s record on inequality are discredited by a Lane Kenworthy graph, which he says he’ll take as a decisive argument in favor of what he calls “progressive neo-liberalism,” “until [he sees] a rebuttal of it.” But didn’t we have a rebuttal of Yglesias’ interpretation from Brian Weatherson, the last time he was pushing this line, back in October 2010? Perhaps he found this rebuttal inadequate in some way. But even if this were so, one would have thought that Lane’s own quite specific and limited explanation of what the graph suggests – that it showed that the UK poor probably did better under Labour than they would have under the Conservatives – might have given him pause (I’m quite sure that Chris, for all his dislike of New Labour, would agree with Lane’s claim here).

I also should note that he had a go last week at John Quiggin’s arguments about inequality, where he suggested that NYU professors had it pretty good, and that:

a lot of the political dialogue I see online seems to consist of a slightly strange form of class resentment in which intellectuals, nonprofit workers, or public servants express bitterness about the high incomes of businesspeople whose lives they don’t actually envy.

I wrote a somewhat ill-tempered post in response to this, and then deleted it, because I wasn’t greatly looking forward to policing the comments section. So I’ll limit myself to saying that Yglesias’ aside certainly doesn’t do justice to the genuine and quite serious debates around inequality, which, as far as I can see, are not being driven by ‘class resentments’ but by a genuine and well-founded dismay about the current state of the US political economy. Enormous disparities of wealth help reinforce huge disparities in political power (see e.g. Bartels’ findings on how the interests of different economic segments get represented in the electoral process) in a self reinforcing cycle. That’s a problem – and it’s a particularly big problem for someone who wants to concentrate on maximizing growth first, and only on sharing out the goodies afterwards. As Cosma says in the best post on this broad set of topics that I’ve read to date.

“When you tell us that (1) the important thing is to maximize economic growth, and never mind the distributional consequences because (2) we can always redistribute through progressive taxation and welfare payments, you are assuming a miracle in step 2.” For where is the political power to enact that taxation and redistribution, and keep it going, going to come from? A sense of noblesse oblige is too much to hope for (especially given how many of our rich people have taken lots of economics courses), and, for better or worse, voluntary concessions will no longer come from fear of revolution.

To be clear – I think that Matthew Yglesias is an extremely smart and interesting writer, even when I disagree with him, as I often do. He’s a net contributor to US public debate. But when he comes up against this particular set of issues, he has an unfortunate tendency to wave difficulties in his position away by making unsubstantiated imputations about the motives of people who bring up the problem of wealth inequality, and (update: now withdrawn – see his comment below) referring to graphs which don’t actually say what he thinks they say. I wish he’d do better.

Update – I see that Chris has also updated his post in response.

{ 112 comments }

1

Matthew Yglesias 08.04.11 at 6:08 pm

It seems to me that we keep talking around this point: “we can always redistribute through progressive taxation and welfare payments, you are assuming a miracle in step 2.”

Am I assuming a miracle in step two, or is this exactly what New Labour accomplished under Blair and Brown? My reading of the data in that Kenworthy chart, which I believe is not undermined by Weatherson’s critique of my previous post on the subject, is that they did in fact redistribute income through progressive taxation and welfare payments. Similarly, it was just last year that Barack Obama signed into law a health care bill that increased taxes on high-income earners and transfers the funds to low-income Americans in the form of health care subsidies. So I don’t think I’m assuming a miracle.

Apologies if you feel I impugned the motives of anyone in regard to inequality. Let me simply restate my hypothesis that few tenured professors at reputable Anglophone universities actually envy the lives of CEOs earning above the “top one percent” threshold. Perhaps that hypothesis is false. But if my hypothesis is true, I think it complicates the issue of inequality somewhat beyond the terms in which Quiggin presented it.

2

Sebastian H 08.04.11 at 6:13 pm

They don’t envy the lives of CEOs, they envy the money.

(Which should not be read as a particularly damning critique of tenured professors. I envy the money of CEOs, and I don’t want to be a CEO or a tenured professor).

3

dictateursanguinaire 08.04.11 at 6:13 pm

“But even if this were so, one would have thought that Lane’s own quite specific and limited explanation of what the graph suggests – that it showed that the UK poor probably did better under Labour than they would have under the Conservatives – might have given him pause (I’m quite sure that Chris, for all his dislike of New Labour, would agree with Lane’s claim here).”

I wouldn’t be surprised if it turned out that Yglesias’ middle name is “Pangloss.”

“It could have been worse therefore it was the best.”

I have to say, I personally do find him interesting but I also think that he often argues in bad faith, either being deliberately naive (reducing all problems to “OUR technocrats weren’t in power” vs. seeing more fundamental or thorny conflicts) or assuming bad (and petty) motives on the part of his opponents. The way I’m reading it, that explanation is literally incomprehensible – if the intellectual class doesn’t actually envy the elite, how can they base their concerns about inequality on that envy? Further, it’s an affront to massive bodies of research that look into empirically observable data about relatively un/equal societies. Other neoliberals who don’t care at all or as much about inequality as “lefties” seem to at least pretend to take it seriously as an idea, rather than brush it off as some sort of crypto-Marxist concern. Sorry, I think this post is too charitable; don’t wanna just troll Yglesias and he’s not by any means a useless or uninteresting writer but this argument seems specious.

4

Henri Vieuxtemps 08.04.11 at 6:25 pm

Heh. I haven’t read him for while, except via IOZ, but it’s my impression that the “envy” things must be the new low: this is straight from the Wingnut 101 textbook. Nice going.

5

Henry 08.04.11 at 6:29 pm

bq. Am I assuming a miracle in step two, or is this exactly what New Labour accomplished under Blair and Brown?

Isn’t it pretty clear that inequality, in fact, went up in Britain over the period in question? And isn’t it furthermore clear that inequality has gone up rather more in other countries influenced by neo-liberalism over the relevant period, than in the countries where it only had limited impact? Here, I think that Andrea Brandolini is on-topic.

bq. What I really find conspicuous in the comparison of top income shares across rich nations is the similarity of the patterns observed in English-speaking countries as opposed to those found in continental European countries. It is striking that, after a prolonged period of moderate decline, the income share of the richest 1 percent suddenly began to rise in the mid-1980s in the United Kingdom, Canada, Ireland, Australia, and New Zealand as well as in the United States, while it exhibited no upward trend in France, Germany, the Netherlands, Spain, and Switzerland.

bq. The difference between these two groups of countries confirms that market and technological forces cannot be the whole story, but the similarity of trajectories, including the time of the turning point, in the English-speaking countries defies an explanation based only on the national characteristics of the U.S. political process. Hacker and Pierson recognize the potential problem, but play it down by positing that the close interdependence of the markets for top executives can largely account for the common trends in English-speaking economies. Perhaps, but why should interdependence be so much stronger between London and New York than between London and Frankfurt in today’s highly integrated financial markets? Can common language be the only critical factor, or are there more fundamental reasons?

I think that neo-liberalism and policy contagion is a highly plausible explanation here (although nb that France was more influenced by neo-liberalism than its rhetoric would have suggested).

Finally – and I really don’t think you’d disagree with this – isn’t it also clear that the increase in inequality was associated with a variety of political measures (e.g. deregulation of financial markets) that have had pernicious political consequences? The vicious circle of deregulation-more money for the financial industry – more political clout for the financial industry – further deregulation has been a horrible one. To put it another way – given what you know now, would you have been an advocate for setting financial market deregulation in train in the early 1990s, on the (correct) assumption that it would lead to higher economic growth over the next fifteen years?

On healthcare – see my earlier comment in response to you – short version is that I don’t really think that this can be counted as much of a victory for progressive neo-liberalism.

6

bh 08.04.11 at 6:35 pm

Henry, you should have just posted the nasty version. On these topics, you’ll get the same strategically obtuse non-response regardless, as evidenced by comment #1.

And no, in the scheme of things, Yglesias isn’t particularly evil or stupid. But there are people much, much more worthy who aren’t nearly as widely read. I’d dispute that his impact is a net positive. To the degree he has influence, it’s going to be among people who at least identify as left of center. Within that sphere, we need a prominent voice who consistently poo-poo’s distributional issues — and is massively, bafflingly blind to the most basic notions of political economy — like we need a hole in the head.

7

Henry 08.04.11 at 6:42 pm

bq. Apologies if you feel I impugned the motives of anyone in regard to inequality. Let me simply restate my hypothesis that few tenured professors at reputable Anglophone universities actually envy the lives of CEOs earning above the “top one percent” threshold.

But isn’t your main hypothesis _not_ about these people not envying the lives of CEOs, but that the critics (or a presumably very substantial percentage of those critics) are motivated by ‘class resentment?’ This seems to me to be a direct suggestion that their problem with inequality doesn’t have much to do with the actual arguments that they are presenting, but instead stem from baser (and unjustified) forms of envy. I suspect that if someone made a similar claim with regard to the motivations of ‘progressive neo-liberals,’ you would very reasonably resent it.

And the specific claim about motivations has no basis in your more general claim about the complexities of inequality. It is likely true that many (not all) professors at good universities would prefer their life to country-club living with a nice house and swimming pool etc outside a big city. You’re entirely correct when you say that many professors have a pretty nice life (nb though that there are all sorts of inequalities within academia; NYU professors are hardly representative; nor are most non-profit workers in the same category etc). Equally so, few CEOs with country club memberships etc would give it all up if they could only get a cushy tenured position and enjoy those intellectual New York dinner parties. But if one were to start arguing from that basis that businessmen’s criticisms of academics flowed from an irrational class jealousy of the good life that those professors were leading, it would be a decidedly odd argument to be making.

8

Cranky Observer 08.04.11 at 6:42 pm

> Apologies if you feel I impugned the motives of anyone in regard to
> inequality. Let me simply restate my hypothesis that few tenured
> professors at reputable Anglophone universities actually envy
> the lives of CEOs earning above the “top one percent” threshold.

There are many many existing technology and manufacturing firms in the United States that went from a salary (pure paycheck salary – not even juiced up stock options) ratio of 10:1 from President:professional/union (say, $600,000 for the President to $60,000 for the engineer/machinist) as late as 1990, to salary structure of 200:1 or more ($12 million for the CEO to $60,000 or less for the worker) today. And generally speaking those firms are not much larger, more successful, or more profitable than they were under the old salary ratio. The hypothesis that the “bigger pie” neoliberals need to address is the one that claims that large inequalities of compensation produce larger pies, when the evidence since 1930 is exactly the opposite.

Note that I am not speaking of entrepreneurs or people who took large percentages of their compensation in stock or legitimate options; I despise Bill Gates’ software and business tactics but I don’t begrudge him his wealth because he put it all at risk throughout the period he was building Microsoft. I am speaking of the extremely highly paid salarymen.

Cranky

9

P O'Neill 08.04.11 at 6:48 pm

Name that author:

In the first place, many people in Ward Three suffer from Sublimated Liquidity Rage. As lawyers, TV producers and senior civil servants, they make decent salaries, but 60 percent of their disposable income goes to private school tuition and study abroad trips. They have little left over to spend on themselves, which generates deep and unacknowledged self-pity.

Second, they suffer from what has been called Status-Income Disequilibrium. At work they are flattered and feared. But they still have to go home and clean out the gutters because they can’t afford full-time household help.

Third, they suffer the status rivalries endemic to the upper-middle class. As law school grads, they resent B-school grads. As Washingtonians, they resent New Yorkers. As policy wonks, they resent people with good bone structure.

In short, people in Ward Three disdain three things: cleavage, hunting and dumb people who are richer than they are. Rich people have to learn to adapt to the new power structure if they hope to survive.

Solution here.

10

ejh 08.04.11 at 6:53 pm

It’s got stuff all to do with envy. I don’t care how much anybody else gets paid, at least, not those who get far more than me, and I don’t envy their lives, which, it strikes me, are less happy than most other people’s.

What I object to is their political power, and their attitudes towards the rest of society and particularly the poorer part of it. Which, of course, wouldn’t matter too much were it not for the power issue. I think, by and large, that they’re nasty, socially ignorant and ill-motivated and that they possess the power to make their attitudes influential and effective. Envy, nothing.

11

K. Williams 08.04.11 at 6:54 pm

“It is striking that, after a prolonged period of moderate decline, the income share of the richest 1 percent suddenly began to rise in the mid-1980s in the United Kingdom, Canada, Ireland, Australia, and New Zealand as well as in the United States, while it exhibited no upward trend in France, Germany, the Netherlands, Spain, and Switzerland.”

This is pretty deceptive. While the trend toward greater income inequality started earlier in the Anglophone world, there has absolutely been a clear trend toward rising inequality across the OECD. Indeed, between 2000 and 2006, according to the OECD, income inequality rose faster in Germany than it did in any other OECD country: http://www.oecd.org/dataoecd/45/25/41525346.pdf.

12

Tom Bach 08.04.11 at 6:59 pm

A quick point, in the initial post the non-envy based class resentment wasn’t a theory but rather an observation of (allegedly) actually existing non-envy based class resentment:
a lot of the political dialogue I see online seems to consist of a slightly strange form of class resentment in which intellectuals, nonprofit workers, or public servants express bitterness about the high incomes of businesspeople whose lives they don’t actually envy.

13

Henry 08.04.11 at 6:59 pm

But Matt – to be clear – if the apology above is for over-egging the ‘class resentment’ stuff, and you are now withdrawing that, that’s fair enough as far as I am concerned.

14

Cranky Observer 08.04.11 at 7:00 pm

> It’s got stuff all to do with envy. I don’t care how much
> anybody else gets paid,

I do care what they get paid, to the extent that the amount they get paid prevents everyone else for being paid an amount sufficient to live a decent life. We got along quite well for many very productive years with 10:1 salary ratios providing plenty of incentive (competition for those $600k President jobs was if anything fiercer because it was reasonably within reach of every employee not just the self-selected “superstars”), and seems to work fine in Germany to a large extent today. What is the social benefit of the 200:1 and even 1000:1 salary ratios so common in the US? Whose pie is getting bigger and whose is getting stolen?

Cranky

15

K. Williams 08.04.11 at 7:04 pm

“And generally speaking those firms are not much larger, more successful, or more profitable than they were under the old salary ratio. The hypothesis that the “bigger pie” neoliberals need to address is the one that claims that large inequalities of compensation produce larger pies, when the evidence since 1930 is exactly the opposite.”

The part of this argument that I’ve never understood is that it’s clear that the rise in CEO (and other top executive) salaries is largely a function of the increased use of stock options in compensation. Indeed, the rise in CEO salaries between the early 1980s and 2007 tracks almost perfectly the rise in the market cap of the S&P 500. So the rewards that CEOs are receiving are rewards not that would have gone to factory workers, but rather to shareholders instead (the shareholders would have reaped the benefits of less dilution). But the vast majority of shareholders are themselves wealthy — something like 70% of US stock is owned by the top 10%. But that means that we’re really talking, in large part, about a transfer of wealth among the wealthy.

Implicit in your argument, I understand, is that if CEOs were paid less, then factory workers would be paid more. But there’s no plausible picture of labor markets under which is the case — factory workers are paid what the competitive (or union-determined) wage is, not in relationship to what the CEO makes. If CEOs were paid less, factory workers wouldn’t get more — shareholders would. Which might be better from a social-justice point of view in the sense that CEOs are clearly overpaid relative to their marginal productivity. But it’s hard to see how increasing returns to capital is something social democrats, let alone democratic socialists, should be obsessing about.

16

Barry 08.04.11 at 7:11 pm

“To put it another way – given what you know now, would you have been an advocate for setting financial market deregulation in train in the early 1990s, on the (correct) assumption that it would lead to higher economic growth over the next fifteen years?”

I am sick and tired of this lie. Krugman posted a chart showing growth rates for the developed world by decade, and the trend is clear: growth rates steadily declining from the 60’s to the 70’s to the 80’s to the 90’s to the 00’s. And I’m willing to wager $1000 that the growth rates for the ‘teens will be less than for the 00’s. Way less.

We’ve tried the neolib economic game for 30 years, and it’s failed. By now it’s a fraud.

17

SamChevre 08.04.11 at 7:11 pm

I don’t care how much anybody else gets paid…What I object to is their political power.

Right.

And it’s well worth noting that the actual working/middle class resents the political power of the intelligentsia rather a lot, and for comprehensible reasons.

18

Cranky Observer 08.04.11 at 7:26 pm

> The part of this argument that I’ve never understood is that it’s
> clear that the rise in CEO (and other top executive) salaries is
> largely a function of the increased use of stock options in
> compensation. Indeed, the rise in CEO salaries between the
> early 1980s and 2007 tracks almost perfectly the rise in the
> market cap of the S&P 500. So the rewards that CEOs are
> receiving are rewards not that would have gone to factory workers,

I’m glad that’s clear to you, because it is not clear to me at all after reading hundreds of annual reports and compensation reports since the early 1990s. First, paycheck salaries have clearly skyrocketed as one component of total compensation.

Second, most of what was called “options” or even stock compensation from 1992-2002, and many “performance bonuses” as well, was clearly just phony-baloney: there was almost literally nothing a CEO or CxO could do to _not_ receive that “variable” compensation. The pre-Murdoch Wall Street Journal openly documented case after case where entire board meetings were filled with nothing but motions to “reprice” or “realign” supposedly variable compensation so that it would be paid out even as the entity’s actual business results plummeted. The managers, CEOs, and even founders who really put themselves at risk were few and far between (Gates and Ellison come to mind; not many others).

If you are saying that the incestuous circle of compensation committees were going to figure out a way to rake this money off regardless I would be willing to follow you along that path. But to claim that there was some structural feature of “the market” that took us from 10:1 in 1980 to 200:1 in 2000 is going to require some really heavy underpinnings.

I also spent a very instructive year working under a private equity firm that looked for undervalued (read: badly managed) public firms, taking them private, and restructuring them. Almost the first thing these guys (who had the reputation of real sharks) did was fire all 27 executives making $2,000,000/year (paycheck) and replace them with 15 people in the mid-manager ranks and bump them up to $200k. Guess what? Despite those 27 self-described superstars being unceremoniously dumped and replaced with old-fashioned nose-to-the-grindstone workers, the company’s performance improved. Substantially. The private equity partner I was supporting told me that that is what they see in almost every case.

So I am in no way convinced by either the superstar or inevitability-of-inequity theories of corporate governance.

Cranky

19

Henri Vieuxtemps 08.04.11 at 7:29 pm

Stock price has little to do with return on capital; profits do. And stock options, considering the way they are allocated to the execs, is a whole different game.

20

Henry 08.04.11 at 7:30 pm

Barry – the question is not whether this would lead to higher growth rates than in previous decades – it is whether this would have led to higher growth rates than would otherwise have been possible. And here I think the neo-liberals were right up to a point. The expansion of financial markets, easy credit for homeowners etc, all surely played an important role in fuelling domestic growth. Colin Crouch has a nice new book out where he calls this ‘privatized Keynesianism’ – a regime under which cheap credit boosted aggregate demand among consumers. Whether this was _sustainable_ or wise is of course an entirely different question.

21

shah8 08.04.11 at 7:48 pm

Man, I want to be fair to you, *Henry*, but you’re not giving me reason to think anything but that you’re clueless about the big picture. Yglesias is making a utilitarian argument about baseline good government, and showing a direct benefit to welfare. In a world where Henri is a politician, he’s going to have to sell the change of policy (to whatever preference of “better policy” that is) to people who are responding to their own changes in welfare.

22

John Quiggin 08.04.11 at 7:49 pm

To respond further to Matt, my main point is not class resentment, or even the problem of the top 1 per cent having all the political power (though that is a big problem). It’s the very simple observation that, in a society where the top 1 per cent of the population get 25 per cent of the income, a share that is steadily rising, while the bulk of the population are experiencing stable or declining real household income, the only place to get any additional revenue is from the top 1 per cent.

Of course it’s true that there is no magic line here. In fact, I used to criticise a focus on the top 1 per cent on the grounds that you needed to look at people like Matt’s NYU professor if you were going to undertake serious redistribution. That was because, for much of the post-war period, that was true. Extremes of income and wealth were limited, so there wasn’t a lot to be gained from a policy that taxed only the richest 1 per cent.

As Keynes said on this general point, when the facts change, I change my mind

23

Philip 08.04.11 at 7:49 pm

From the conclusion of the section on inequlaity from the IFS report that Lane Kenworthy got the graph from:

‘… broadly, the income distribution became more equal between around the 20th and 85th percentiles, but it has grown more unequal at the very top and the very bottom. Accordingly, a measure of inequality that gives the ratio of the 90th to the 10th percentile of the income distribution shows unchanged inequality since 1996–97, but other measures that look at the whole distribution tend to show that inequality has risen, with the rise in the Gini coefficient (from 0.33 to 0.36) since 1996–97 being statistically significant. This overall small rise in inequality is much smaller in magnitude than the rise in inequality occurring during the 1980s: between 1979 and 1990, the Gini coefficient rose from a value of 0.25 to 0.34.’

So basically inequality rose but not as much as in the preceding tory governments. I couldn’t see the actual graph that Matt and Lane use but there were a couple of bar charts that seemed to show the same thing.

24

LFC 08.04.11 at 7:55 pm

Yglesias’s remark about class resentment is not even good pop sociology. It’s just a sort of inversion of the neocon-ish discourse of the ’70s about the ‘new class’. See, e.g., here.

25

Philip 08.04.11 at 7:56 pm

Oops, wrong link in my post above. This is the right one.

26

Philip 08.04.11 at 7:58 pm

I can’t get the html tags to work so here is the url.

http://www.ifs.org.uk/comms/c109.pdf

27

Marshall 08.04.11 at 7:59 pm

I simply do not understand what point Yglesias is making by asserting that liberal academics prefer their own consumption bundle to the consumption bundle of super-wealthy CEOs. So what? Super-wealthy CEOs still have outsize political power, which they use to further benefit themselves and harm people who are not of their class, including by using their political power to oppose counter-cyclical macro policies.

28

shah8 08.04.11 at 8:08 pm

*John Quiggen*, the biggest changes in welfare happens wrt changes in labor composition and labor size. Essentially, how captive a labor force is. There is also not three economic classes in the US, but many, and all with their own parochial interests–many of those that involves maintaining supremacy over some other group. Growth, with a diverse economy, and a government that does the basic jobs and services tends to drive a more consensus based politics (because oppressed people can leave for other opportunities) which feeds back as well.

29

MPAVictoria 08.04.11 at 8:11 pm

Isn’t equality something that is valuable for its own sake? I listened to a very interesting interview of Richard Wilkinson where he discussed his book The Spirit Level: Why Equality is Better for Everyone. Basically his research found that, above a certian level higher, GDP is not correlated with better outcomes for a nations population in eleven different health and social problems: physical health, mental health, drug abuse, education, imprisonment, obesity, social mobility, trust and community life, violence, teenage pregnancies, and child well-being. Instead what really matters is the level of equality. The more equal the nation the better the outcomes in those catagories and outcomes are significantly worse in more unequal rich countries.

30

soru 08.04.11 at 8:12 pm

Isn’t it pretty clear that inequality, in fact, went up in Britain over the period in question?

As I understand the previous thread to have concluded, only under a definition of inequality that is numerically dominated by the difference between the senior professor and the CEO.

It is certainly possible (by means listed in that thread) to argue that that is the most important, or certainly a very important, aspect of inequality. But I don’t think it it is really the first thing most people would think of when the word is used.

31

Watson Ladd 08.04.11 at 8:13 pm

Henri, K. Williams point is still made even if you don’t assume the excess profits are reflected in stock prices. That said I can come up with a model in which tax structure affects labor prices. Assume companies employ 2 forms of labor: high grade and low grade. Further assume that they pay one tax rate on high grade labor and another on low grade, and that high grade and low grade labor are twin inputs to a convex production function. Under certain conditions (which I’ve not worked out yet) then a rise in the cost of high grade labor (because of taxes) will drive up demand for low grade labor as a substitute. So its clear the policies restricting the wealth of the upper 1% in taxes might have positive effects on other workers. I might be wildly off base, not having done the math yet.

Besides, even as redistributional spending increased a lot of that came because of growth in “safety net” programs and was taken up by bloat. The UC system is about to start charging tuition despite the State of California spending lots of money on social services to its citizens. The state is increasingly being forced to fight a few fires, and can no longer provide a broad range of services.

32

nick s 08.04.11 at 8:15 pm

if my hypothesis is true, I think it complicates the issue of inequality somewhat beyond the terms in which Quiggin presented it.

File under ‘not even wrong’.

33

b9n10nt 08.04.11 at 8:21 pm

Marshall: what I take from Yglesias here (& I agree this isn’t necessarily intrinsic to what he says) is that the logic of redistribution (which MY supports) still isn’t as compelling as the logic of strengthening the commons.

Using the gum’mint to take from one and give to the other reinforces a certain political ideology of phantom individualism and reified property relations.

By all means tax the rich and subsidize the poor. But then are we secondarily subsidizing inefficient and rent-seeking health care practices or efficient and accountable providers? Are we subsidizing cars or mass-transit? Are we subsidizing air conditioning manufacturers or are we subsidizing low-emission industries.

I like a world in which quality of life is more directly linked to a vibrant commons than my personal income.

34

piglet 08.04.11 at 8:25 pm

Does Yglesias live under a rock? Is it possible that he hasn’t heard of Hacker/Pierson, Picketty/Saez, Warren, Krugman, to name just a few who have drawn attention to runaway inequality in the US? Frankly his fact-free comment is not worthy of a rebuttal.

35

b9n10nt 08.04.11 at 8:33 pm

Piglet: no, yes, and self-refuted.

36

b9n10nt 08.04.11 at 8:34 pm

Oops, that’s no, NO and self-refuted.

37

piglet 08.04.11 at 8:37 pm

“But if one were to start arguing from that basis that businessmen’s criticisms of academics flowed from an irrational class jealousy of the good life that those professors were leading, it would be a decidedly odd argument to be making.”

Not that odd. From a anthropological/sociological perspective, this seems to be an interesting line of inquiry. Judging from the unusual amount of hatred that the corporate elites reserve for intellectuals and academics, it is not unreasonable to hypothesize that there is something in the latter group’s lifestyle – maybe the relative freedom – that causes envy. I don’t think that hatred can be explained by academics’ perceived liberalness or whatever. Today’s academia is far from being a threat to the plutocracy.

38

ScentOfViolets 08.04.11 at 8:40 pm

on enforced weeklong hiatus. I will take this as a mistake, but please don’t try to break again – HJF.

39

Henri Vieuxtemps 08.04.11 at 8:43 pm

Watson Ladd, this all sounds like sophistry to me. Vanity and chasing of the wind. Why shouldn’t people who work, produce good and services, be paid more or less the equivalent of what they have produced, with slight variations related to their productivity? Sure, a doctor and, I dunno, university professor may have a nicer car and a bigger house than a janitor, but how, for chrissake, can you justify someone – and I don’t care who it is – pocketing in one week more than the janitor makes during his entire life? That’s just sick.

And it’s not just pieces of paper or numbers in a database somewhere; they do consume it. Yachts, mansions, personal jets are built for them, fancy cars for their children. People are building these yachts, and someone else have to produce stuff for them, for people building useless yachts, for expensive hookers, for the personal jet pilots. In the end, we all have to work more than we would’ve worked otherwise. Useless stuff is produced, economy grows, we are worse off.

40

ScentOfViolets 08.04.11 at 8:52 pm

SoV – you’re cruising for a permanent ban …

41

Watson Ladd 08.04.11 at 9:08 pm

Henri, you and I were having an argument over what has to do with returns on capital. I don’t see how your response is a response to either me or K. Williams. Besides, the question isn’t “what should people be payed?”. Its “what is the next form of society?”

42

K. Williams 08.04.11 at 9:21 pm

“a private equity firm that looked for undervalued (read: badly managed) public firms, taking them private, and restructuring them. Almost the first thing these guys (who had the reputation of real sharks) did was fire all 27 executives making $2,000,000/year (paycheck) and replace them with 15 people in the mid-manager ranks and bump them up to $200k. Guess what? Despite those 27 self-described superstars being unceremoniously dumped and replaced with old-fashioned nose-to-the-grindstone workers, the company’s performance improved. Substantially. The private equity partner I was supporting told me that that is what they see in almost every case.”

That’s a nice story, but it doesn’t fit the data. Bakija, Cole, and Heim’s 2010 paper showed that pay increases for executives at private, closely-held businesses have outpaced those at public companies, and CEOs hired by private-equity firms to run companies have a much better chance of walking away with a fortune than CEOs at public companies, because they’re typically given a much bigger ownership stake. To be sure, they need to perform in order to get that money, but there’s no evidence at all that the inflation of CEO pay is a public-company-only phenomenon. And as a variant on my earlier point, I fail to see why there’s a social interest in whether rich private-equity investors pay their CEOs a lot of money or keep the profits for themselves instead.

43

Henri Vieuxtemps 08.04.11 at 9:23 pm

K. Williams thinks that the super-high incomes don’t matter, as long as they are generated by stock options. You defend K. Williams. ROI is just a technical detail; I believe that super-high incomes do matter, no matter how they are generated. And I tried to explain why.

44

piglet 08.04.11 at 9:30 pm

15: “So the rewards that CEOs are receiving are rewards not that would have gone to factory workers, but rather to shareholders instead (the shareholders would have reaped the benefits of less dilution). But that means that we’re really talking, in large part, about a transfer of wealth among the wealthy.”

Coupling CEO pay with stock performance creates incentives for CEOs to try to bolster short term profits, by underpaying workers, outsourcing jobs, neglecting worker safety and environmental protection, reckless risk-taking, etc. No, it’s not just a transfer of wealth among the wealthy.

45

Matthew Yglesias 08.04.11 at 9:53 pm

Isn’t it pretty clear that inequality, in fact, went up in Britain over the period in question?

Yes, but Chris Bertram’s post argued that under Blair/Brown it wasn’t the case that GDP growth led to rising incomes for all classes. The data indicates that incomes did, in fact, rise quite broadly under Blair/Brown and did so thanks to the kind of tax and transfer policies that you’re arguing never materialize. That seems relevant.

46

Matthew Yglesias 08.04.11 at 9:56 pm

the only place to get any additional revenue is from the top 1 per cent

Allowing for a certain amount of rhetorical flourish, I don’t disagree. Insofar as the goal is to raise revenue, you have to go where the revenue is.

But I also think that in a relatively affluent society it makes sense to take a somewhat broader view of quality of life — and thus of inequality in quality of life — than would be suggested by a narrow focus on cash income. This is why the fact that many people who earn substantially less than CEOs do not in fact envy the lives of CEOs is relevant.

47

Matthew Yglesias 08.04.11 at 10:01 pm

But isn’t your main hypothesis not about these people not envying the lives of CEOs, but that the critics (or a presumably very substantial percentage of those critics) are motivated by ‘class resentment?’

This is what I’m trying to withdraw. Amateur hour mind reading attributing bad motives to people is rarely a good way to have a political discussion.

48

bh 08.04.11 at 10:05 pm

But the vast majority of shareholders are themselves wealthy—something like 70% of US stock is owned by the top 10%. But that means that we’re really talking, in large part, about a transfer of wealth among the wealthy.

No, this means that the vast majority of shares are held by the wealthy. It doesn’t mean, at all, that everyone with a vested interest in equity markets is rich.

Like anything involving savings, of course it tilts towards higher incomes. But to echo John Q’s earlier point about the greater relevance of the top 1% in today’s world — you can’t equate the interests of anyone with a 401(k) to the tiny slice of top management that’s in line for big option paydays.

But really… this finance discussion is just a sophist distraction. I think increased income inequality is a serious issue of social justice, and you apparently don’t. All the psuedo-technical hand-waving in the world won’t bridge that gap.

49

Barry 08.04.11 at 10:08 pm

Henry 08.04.11 at 7:30 pm
” Barry – the question is not whether this would lead to higher growth rates than in previous decades – it is whether this would have led to higher growth rates than would otherwise have been possible. And here I think the neo-liberals were right up to a point. The expansion of financial markets, easy credit for homeowners etc, all surely played an important role in fuelling domestic growth. Colin Crouch has a nice new book out where he calls this ‘privatized Keynesianism’ – a regime under which cheap credit boosted aggregate demand among consumers. Whether this was sustainable or wise is of course an entirely different question.”

Harry, as Krugman pointed out, the evidence is contrary – the growth rates were better in the 1970’s, despite massive, unexpected and fundamental shocks.

50

Marshall 08.04.11 at 10:21 pm

But I also think that in a relatively affluent society it makes sense to take a somewhat broader view of quality of life—and thus of inequality in quality of life—than would be suggested by a narrow focus on cash income. This is why the fact that many people who earn substantially less than CEOs do not in fact envy the lives of CEOs is relevant.

But the inequality-remedying proposal on the table is NOT “transfer from CEOs to liberal professors.” The proposal is to finance a more egalitarian society by taxing the very rich.

This business about comparing utility levels of professors and CEOs smacks of the worst kind of conservative excuse-making for hereditary super-privilege. So something other than cash income matters? Therefore we can all agree that redistribution would be bad and just because people are poor doesn’t mean they’re not well-off. Or something like that.

Anyhow, we can all see that in the real world, wealthy CEOs prefer a political order of high inequality, where they live in a world of comped golf club memberships and gated McMansions, whereas those of a more liberal cast of mind like to be able to walk down the street in an American city. In order to preserve the latter kind of society, we need to tax the CEOs–but then we face hand-wringing from the Matt Yglesiases of the world.

51

Henry 08.04.11 at 10:22 pm

bq. Yes, but Chris Bertram’s post argued that under Blair/Brown it wasn’t the case that GDP growth led to rising incomes for all classes.

As I read it, I don’t think it did say that. Could you point to the bit where he says this?

As I read the post, it argued that New Labour’s focus on skill-acquisition and education as a fix for decline was fundamentally misconceived, and revealed basic weaknesses in the neo-liberal toolkit – but that seems to me to be quite a different argument. It also argued that if the bloke who he was quoting was right, we were probably going to see a fall in living standards accompanied by GDP growth, which suggested that there was something badly wrong with the ‘rising tide lifts all boats’ approach, and that redistribution needed to be “explicitly on the agenda.” Do you disagree with this? He did, in an addendum specifically responding to you, say that while he had said nothing about New Labour and inequality in the original post, he believed that Blair and Brown had “failed” on inequality. But that is a claim that is perfectly plausible on a variety of grounds, including (and I presume that you would agree here) – a Rawlsian maximin criterion, since it is clear on any reading of the figures that the least well-off were getting shafted during the period.

More generally, I think that Brian’s original argument still stands.

bq. In principle a rise in Gini that was caused solely by the very rich getting even richer could be accompanied with an intuitive improvement in equality, if we saw in general things getting better for the poorer across the board. But that’s really not what we saw in Britain. And in a period of economic growth, you’d expect Gini to fall even if we were standing still on equality. When it rises, we have an indication that things are getting considerably worse, and I don’t see anything in the data to defeat that indication.

On the class resentment thing, am quite happy to accept your withdrawal of the suggestion, as I’ve said similarly unhelpful things myself on many occasions that I’ve had the opportunity to repent at leisure &c.

52

K. Williams 08.04.11 at 10:30 pm

“just a sophist distraction. I think increased income inequality is a serious issue of social justice, and you apparently don’t. All the psuedo-technical hand-waving in the world won’t bridge that gap.”

No, it’s not a sophist distraction. The increase in inequality over the last twenty-five years has actually not been outrageous — the top 10% went from getting 41% of national income in 1986 (which is after the change in the tax code resulted in the rich reporting the income they were actually earning) to getting 47% or so of national income in 2007. (Graph here: http://www.slate.com/id/2266025/entry/2266026). You can say that’s not ideal from a social-democratic perspective, but it’s hardly evidence of some massive shift in income distribution. The really big change has come in the percentage of income that’s going to the top 1%. But a big chunk of that change has been a result of the shift of the distribution of income within the top 10% — that is, the top of the top 10% now takes home more income than it used to. And this is precisely a function of things like increased use of stock options and the rise of hedge funds — whose managers’ incomes are paid almost entirely by other rich people. Again, that may not be ideal, but it’s hard to argue that we should be making social policy with an eye toward ensuring that the income of the top 10% is more fairly distributed.

53

bh 08.04.11 at 10:31 pm

46 — I imagine there’s supposed to be some daylight between this and a Heritage-style “…but the poor have iPods!” argument, but I’ll be damned if I can see it.

And yes, people born into relative privilege can make lifestyle choices that trade off between income and other quality-of-life dimensions. That has absolutely nothing to do with the lot of the poor and working classes.

54

bh 08.04.11 at 10:33 pm

52 — just more of the same, right down to the cherry-picked stats.

55

Sebastian H 08.04.11 at 10:36 pm

“But the inequality-remedying proposal on the table is NOT “transfer from CEOs to liberal professors.” The proposal is to finance a more egalitarian society by taxing the very rich.”

A big part of the problem is that the liberal professors insist that they aren’t among the ‘rich’ when they most certainly are.

Also what K Williams said above.

56

Chris Bertram 08.04.11 at 10:37 pm

_but Chris Bertram’s post argued that under Blair/Brown it wasn’t …_

Possibly Matt is referring to my post from September last year here?

57

Chris Bertram 08.04.11 at 10:41 pm

_A big part of the problem is that the liberal professors insist that they aren’t among the ‘rich’ when they most certainly are._

Could it really be the case in the actual world that a what liberal professors insist on is a “big part of the problem”? I’ve spent some part of today pointing out to a friend that (using the Institute for Fiscal Studies calculator) UK academics are quite well off. Whether they are “rich” is, I suppose, a matter of definitions.

58

Harold 08.04.11 at 10:41 pm

Who cares about whether those in the top 10 percent envy each other? They should take a trip into the heart of the country to see how the other 90 percent live. Especially older women (among whom suicide rates are rising).

59

Chris Bertram 08.04.11 at 10:55 pm

Just looking at Matt’s twitter feed: “Denmark is very nice, but super-racist.”

I really don’t know what to say. His ability to have an instant reaction to everything is both impressive and depressing. He can write any number of instant blog posts but they’re typically based on the merest skim of information so end up being just wild.

60

Watson Ladd 08.04.11 at 11:00 pm

K. Williams, before or after transfers? I’m inclined to suppose that government spending on services to the mass of the population dropped dramatically over that time, increasing the inequality and leading to massive social pathology.

61

K. Williams 08.04.11 at 11:02 pm

“right down to the cherry-picked stats.”

The stats are not cherry-picked. If you want to look at how the incomes of the very well-off have changed over time, you have to do apples-to-apples comparisons, which means you have to look at incomes after tax reform eliminated the incentive for the rich to hide income. The percent of national income going to the top 1% as reported to the IRS jumped a full four percentage points between 1986 and 1988. That’s a bigger increase than the top 1% got between 1988 and 2000. Now, maybe you can construct some plausible explanation for why the top 1% suddenly got a lot richer in those few years, but I doubt it. The obvious explanation is that after the 1986 Tax Reform Act passed, the very rich suddenly started reporting income that they had previously sheltered (likely by reporting it as corporate income) So if you want to know how individual income inequality has actually changed over time, you have to take the impact of the 1986 law into account.

62

Patrick 08.04.11 at 11:07 pm

I don’t envy the rich their lives, their money or their power. I want to diffuse their power more widely, which means they’ll have less of it.

Part of the reason that I do this is that I am a non-tenured permanent faculty member at a Research I institution. While I am not rich, I have health care, meaningful work, and a measure of control over my working conditions. In short, I live an enviable life, and I wouldn’t be surprised if people did in fact envy it, including people with incomes an order of magnitude greater than mine.

What I’d like to make possible is this: more people who aren’t rich are free of worry about paying for their health care and their children’s educations, and more people feel autonomy in their everyday lives. I think that if we reduce the power of the very wealthy, partly through redistribution of wealth (progressive taxation and a robust social insurance regime) and partly through adjusting the political system (more workplace democracy, public financing for elections, weekend voting and a legislative response to Citizens United, for a start), we can do that. Nothing miraculous about it, just hard work.

Whether or not working toward these goals are accompanied by less attractive emotional states matters not a bit. Yeah, I get pissed off sometimes, and sometimes I experience resentment. So what? I’m sure the guys at Goldman Sachs or British Petroleum or Massey Energy or the Walmart heirs are all real sweethearts.

What have I missed?

63

Tom Bach 08.04.11 at 11:08 pm

His ability to have an instant reaction to everything is both impressive and depressing. He can write any number of instant blog posts but they’re typically based on the merest skim of information so end up being just wild.

And yet an other wise intelligent and thoughtful person argues that Matthew Yglesias is an extremely smart and interesting writer.

Odd that.

64

K. Williams 08.04.11 at 11:15 pm

Here’s a historical graph from an unimpeachably left-wing source (Richard Wolff, writing in the Guardian): http://www.guardian.co.uk/commentisfree/cifamerica/2011/mar/01/us-taxation-public-finance

Look at that spike between 1986 and 1989. That is an artifact of the way the tax system works, not evidence of any real change in the distribution of income.

The point of this is not, by the way, that America is more equal than people think it is. The point is simply that the rise in inequality has been less dramatic than people make it out to be, and a hefty chunk of it has consisted of a rise in inequality among the rich, rather than between the rich and everyone else.

65

bh 08.04.11 at 11:18 pm

“after tax reform eliminated the incentive for the rich to hide income. “

Hahahahahahahahahaha!!!

Yep, it went away entirely right there. Never happened again.

K. Williams, it’s safe to say that the two of us are outside the Habermas sphere of mutually beneficial dialogue. For the benefit of the comment section, I’ll stop now.

66

piglet 08.04.11 at 11:21 pm

52: “The increase in inequality over the last twenty-five years has actually not been outrageous”

That’s mind-blowing. And you arrive at that conclusion by postulating that any data before 1986 cannot be used? How convenient.

“The really big change has come in the percentage of income that’s going to the top 1%. But a big chunk of that change has been a result of the shift of the distribution of income within the top 10%”

It’s not exactly that the 1-10% have lost out. Inequality has increased at whatever scale one looks at, between the 90% and the 10% as well as between the 9% and the 1% and even between the 0.09% and the 0.01%. The concentration at the very top isn’t just an shift with the plutocracy that doesn’t need to concern the middle and lower classes. It has political, economic, cultural consequences for everybody. Massively increased political clout of the superrich blocks any political attempt at redistribution. And the frustration of the merely rich at not being among the super-rich keeps the whole cycle going. Read Hacker/Pierson. At least make yourself familiar with the current debate about inequality before dismissing it. And what Marshall said.

67

shah8 08.04.11 at 11:33 pm

Reading *Chris Bertram*’s post @ 59, I just really wonder…

Guys, *Yglesias* is to your left, YOUR LEFT! He ain’t to your right, with *Kevin Williams*. Constant repetitions about how shallow his reporting is indicative to me that your judgements are colored by your dispute. There isn’t one way to be leftish, you know.

68

elm 08.04.11 at 11:33 pm

@61 I hope you’ve emailed Piketty & Saez about your “obvious explanation” and this major flaw you’ve found in their data.

Unless, that is, they’ve already addressed that:


p. 28-29 However, corporate retained earnings translate into capital gains that are eventually realized and reported on individual tax returns. Therefore, in the medium run, this shift will be matched by an equivalent reduction in capital gains. Indeed, the top 1% income share series including capital gains display no notable discontinuity around the TRA 1986 episode (the CPS top income shares increase as fast as the tax return based top income share including capital gains in the medium run from 1985 to 1990).

There is noise in the time series you linked around that time, but you — as usual — selected a local high (1986) for your reference point.

The more honest comparison would be a 34% share ca. 1979 vs. 47 in 2007.

69

piglet 08.04.11 at 11:36 pm

“The obvious explanation is that after the 1986 Tax Reform Act passed, the very rich suddenly started reporting income that they had previously sheltered (likely by reporting it as corporate income) “

There is some spiky behavior around 1988 in the time series, which might be due to

both including and excluding capital gains (which is in the graph you linked to. You can cut those spikes and get a smooth linear increase starting 1978, from 33% up to almost 50% at present (incl. capital gains). Why would the rich gradually increase their reported income starting in 1978? Maybe because their income increased?

70

elm 08.04.11 at 11:42 pm

shah8 @67

On what basis do you believe Yglesias is to the left of Chris Bertram? I’m dying to hear more.

71

Tom Bach 08.04.11 at 11:51 pm

Clearly, Yglesias is a far left wing kook; after all, his first response to a tax increase on the wealthiest 10% was to blame it on non-envy based class resentment. What could be more lefty that denigrating the motivations of attempts to increase taxes. His later retraction and insistence that there is more to life than mere money is further evidence of left-wing bona fides. /s

72

andthenyoufall 08.05.11 at 12:05 am

Chris B — when you said this:

“but as the experience of new Labour shows, it is one thing to sloganize (“education, education, education”) it is another to actually change things.”

in a post about a decline in the absolute standard of living driven by rapidly growing inequality, it’s hard to avoid the conclusion that (a) you meant to imply that New Labour did not change “things”, and specifically that (b) they were not make any dent in inequality. Did you mean either of -a- or -b-?

-B- is a quite natural reading of that comment, and that if it was an honest mistake the bewilderment is uncalled for. Even if you didn’t mean to imply -b-, it seems that Henry wants to defend -b-, which makes this a valuable conversation to have.

P.S. May I suggest that there is a continuum in meticulousness that runs from tweet to blog post to scholarly monograph? :-)

73

Sebastian H 08.05.11 at 12:08 am

“Could it really be the case in the actual world that a what liberal professors insist on is a “big part of the problem”? “

My comment came out overstated because it shouldn’t be limited to what liberal professors think. Quite a few of the idea people in the world are rich. This includes many reporters, lawyers, doctors, professors and accountants. They don’t think of themselves as rich. They talk about taxing the rich as if they are talking about someone else.

74

soru 08.05.11 at 12:13 am

Coupling CEO pay with stock performance creates incentives for CEOs to try to bolster short term profits, by underpaying workers, outsourcing jobs, neglecting worker safety and environmental protection, reckless risk-taking, etc. No, it’s not just a transfer of wealth among the wealthy.

I agree, I don’t see this much as a significant issue of _inequality_. Whether you judge significance factually or relative to likely political effectiveness, this is not an aspect that is going to rate highly.

A better point is this: the correct word for an incentive payment to a holder of an office to perform some particular action desired by the payee is _bribe_. So the question is, why is it legal to bribe CEOs to take actions that are against the best interests of the company?

The size of the payments is secondary, except as they serve to demonstrate that they are bribes, not wages, and that the desired policies _are_ against the interest of the company, at least as seen by the executives.

Otherwise they wouldn’t need to be bribed to take them.

75

K. Williams 08.05.11 at 12:37 am

“There is noise in the time series you linked around that time, but you—as usual—selected a local high (1986) for your reference point.”

Piketty and Saez don’t actually have a convincing explanation for what happened. Look at the graph. Basically, they’re arguing that income for the top 1% jumped four points between 1986 and 1988, and then stayed there, and that that’s not an artifact of the tax reporting system. Okay, then, what’s the explanation? What happened between 1986 and 1988 to move the incomes of the top 1% onto a new plateau?

In any case, 1986 is not a local high. (Take any year from 1986 to 1992, with the exception of the year of the crash, and the top 10% had about the same share of national income.) It’s 25 years ago. The point is that over the past 25 years, the income share of the top 10% has risen six or seven points. Is that really mindblowing? Not to me, particularly since over that same stretch of time the stock market has roughly quintupled.

I’ve read Hacker and Pierson. They have — admittedly — no plausible causative political mechanism to explain the rise of incomes of the top 1%. And that’s really what we’re talking about — as you can see on p. 79 of the Piketty/Saez paper, the income share of the top 5%-top 1% has barely budged over the past 25 years, while the income share of the top 10%-top 5% has actually fallen slightly. There’s one overarching economic explanation that clearly accounts for much of that rise, though, and that’s the fact that stock prices were flat from the late 1960s through 1982, and that they rose sharply between 1982 and 2007. If you owned stock or were paid in stock, you got richer. If you didn’t, you didn’t. This is not a function of higher returns to capital — they’re no higher than they were in the 1960s. It’s a result of a shift in thinking about how executives should be paid — not just how much they should be paid, but how they should be paid. To be sure, there are other changes that mattered — technology made it easier for superstars to reach bigger markets and therefore earn more money, the labor markets in sports were revolutionized, allowing athletes to earn their true market value, and the accumulation of capital during the postwar era meant that those who manage capital (hedge-fund managers, etc.) could earn enormous sums just by taking a tiny slice of the money they were running. But if the stock market had performed the same between 1982 and 2007 as it did between 1968 and 1982, the rise in inequality would have been significantly smaller.

76

shah8 08.05.11 at 12:38 am

*elm*, most of it has already been discussed.

Here’s the thing, I know, from analyzing personal family history, that Yglesias has the gist of things. I can connect the dots to other political milieus as well, by reading books and talking to people. I do think Yglesias is pressing things subtly for whatever reason, but he is absolutely, incontrovertibly, correct about absolute gains in wealth being just as important (and more so in certain context) as relative wealth. I do think that the posters of Crooked Timber are being incredibly narrow-minded when they insist on a top-down, implicitly authoritarian vision of how the social dynamics work. I think so because a certain fraction of people always have, and always will, use whatever excess wealth and social credibility they have to increase their share of the pie. Because I don’t think *Quiggen*, *Henry*, or *Bertram* have a solid grasp of how dixiecrat politics work in an unequal society, I think, as a consequence, that they’re unable to handle more…decentralized attitudes, if not approaches (since we’re still talking about direct government action).

77

Bruce Wilder 08.05.11 at 12:39 am

“Enormous disparities of wealth help reinforce huge disparities in political power . . . in a self reinforcing cycle. That’s a problem . . . “

“Growth, first; re-distribution by tax-and-transfer, after” presumes, I think, that “growth” is not predatory. It is a remarkably naive view, especially in American politics, where many of the declared desiderata of “pro-business” politics are explicitly predatory. “De-regulating” in labor law or environmental law or banking & finance is aimed squarely at re-distributing upward. Ditto for “reforming” Social Security” and Medicare and, especially, Medicaid. Yglesias’s citing of Obamacare’s promised subsidies to insurance companies as re-distribution downward presumes a good deal more “good faith” in the future than is in evidence in the recent past.

My problem with runaway CEO incomes isn’t envy, it is fear. I fear the behaviors that those kinds of incentives are bound to induce. I fear a tournament of sociopaths to occupy those seats of power. I fear short-term thinking from those, who calculate on, “I’ll be gone, you’ll be gone” as they collect their bonuses, and leave the bombs behind. I fear the corruption of score-keeping, when so much rides on the score. I fear a government so corrupted by plutocracy, that no one’s bank account is safe, no one’s water is safe, no one’s air is safe, no one’s future is safe — at least, no one, who isn’t filthy rich.

It’s not that I do not see how a poor man might strike a mutually beneficial deal with a rich man in a positive-sum game; in fact, I do see that possibility. I also see its limits; I see that a rich man might actually prefer a negative-sum game, which enhanced his status or experience of power and superiority, or the value of accumulated financial wealth.

78

MPAVictoria 08.05.11 at 12:41 am

“I fear a tournament of sociopaths to occupy those seats of power.”
Well bloody said.

79

K. Williams 08.05.11 at 12:44 am

“A better point is this: the correct word for an incentive payment to a holder of an office to perform some particular action desired by the payee is bribe. So the question is, why is it legal to bribe CEOs to take actions that are against the best interests of the company?

“The size of the payments is secondary, except as they serve to demonstrate that they are bribes, not wages, and that the desired policies are against the interest of the company, at least as seen by the executives.”

This gets the logic of performance pay exactly backward. The reason shareholders need to incentivize — bribe, in your words — CEOs to take actions that will boost the company’s stock price in the long run is because otherwise CEOs will tend to take actions that boost their own interests at the expense of shareholders. That is, they’ll feather their own nests by doing things like building the absurd corporate offices that you saw in the 1960s and 1970s or engaging in empire-building by investing in capital-destroying enterprises that nonetheless bring in more revenue (and therefore, typically, a higher salary). It’s not that shareholder-friendly policies are against the interests of the company, as perceived by the executives. It’s that shareholder-friendly policies are often against the interests of the executives.

80

Bruce Wilder 08.05.11 at 12:53 am

There’s a lot of unexamined talk about “wealth”, as if privately-owned “wealth” is always a positive good for society.

Financialization of the U.S. economy is all about creating “financial wealth” in the form of debts, with only tenuous ties to sustainable income streams. And, government policy has changed to make this “wealth” stick. Bankruptcy laws were “reformed”; usury laws were voided; the whole sector of mutual savings & loans were wiped out; mutual insurance companies were converted, the system for financing college education was changed to encourage students to take on massive amounts of debt (debt which cannot be discharged in bankruptcy).

Ben Bernanke and Barack Obama have condemned a significant share of the labor force to long-term unemployment, in order to protect the asset values of a predatory financial class. And, it is pre-tax redistribution upward, without appreciable economic growth. Funny how that works.

81

Bruce Wilder 08.05.11 at 1:00 am

“the logic of performance pay”

The logic of so-called performance pay for CEOs and highly placed executives is entirely rhetorical. It is all a pack of lies, to rationalize irresponsible self-dealing.

82

nick s 08.05.11 at 1:02 am

I also think that in a relatively affluent society it makes sense to take a somewhat broader view of quality of life—and thus of inequality in quality of life—than would be suggested by a narrow focus on cash income. This is why the fact that many people who earn substantially less than CEOs do not in fact envy the lives of CEOs is relevant.

The snarky answer is ‘that’s mighty rich of you’, but I’ll just go with ‘up to a point, Lord Copper’. In the US, cash income matters a lot, regardless of whether Yglesias wishes otherwise, especially when you extend the analysis beyond a comparison of those at the upper and lower ends of the top 5%. Cash income is what allows you not to fear destitution from medical bills or to repair a car that your job depends upon; the former, at least, still extends past the threshold of NYU professors, and that high threshold of insecurity becomes another justification to keep the taxes on high earners low.

83

Myles 08.05.11 at 1:19 am

The question about whether New Labour succeeded or failed depends on the alternative “opportunity-cost” case, innit? i.e. What are the opportunity cost of New Labour policies?

I think it should be reasonable that if we take a hypothetical Old Labour government as the default baseline, New Labour has actually done remarkably well in terms of Rawlsian welfare maximalization. The basic problem is that British economic growth over the past two decades is dependent on the self-same economic processes that do, in fact, aggravate income inequality: things like professional, media, legal, and financial services; things like export-oriented luxury services; things like the inward money flows from wealthy foreign, especially Gulf, entities and individuals. Redistribution is a wonderful thing, but if you don’t have economic growth you don’t got nuttin’ to redistribute. We are presuming things like that economic growth and national income growth would be the same under a hypothetically more orthodox Labour government, only with more redistribution, when that doesn’t seem to me to be the case. New Labour was pretty vigorous in promoting redistribution, no less vigorous than it was in promoting economic growth.

Without too much numbers-crunching, we know the following: a) Old Labour would have been less friendly to the growth in professional, media, legal, and financial services. b) Export-oriented luxury services enjoy boosterism from all parties, but Old Labour would have been less competent in actually boosting the sector. c) Tony Blair, for all his faults, was pretty effective in getting Gulf entities to throw massive gobs of money into Britain, at least more effective than just about any other hypothical Labour prime minister.

In economics, we can often figure out the sign (rather than the absolute magnitude) of a problem by just throwing plus and minus signs in front of variables. We can do roughly the same thing here. The signs in front of the big variables are all negative under the opportunity cost of a contemporaneous hypothetically orthodox Labour government. So I think it’s not unreasonable to assume that the delta of the dependent variable, the difference in welfare of the British economy between different styles of Labour administration, and thus the welfare of the most vulnerable members of British society under Rawlsian maximalization, would be negative as well.

I think also, from a preference aggregation standpoint, New Labour was incredibly legitimate in what it did. Tony Blair lied about a lot of things, but he did not lie, in the grander scheme of things, about his socio-economic ideas and programme. The populace voted for it because the populace perceived Blair’s programme to be in their best interests and maximize their utility. I just don’t see what’s the point of trying to ideologically negate something that was as definitively affirmed as the New Labour economic programme was in 1997.

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shah8 08.05.11 at 1:39 am

Myles, I can’t fucking stand Tony Blair. I’d also state that for whatever “old” and “new” Labour that has the front face, the internal politics still has plenty of the machinery of the “old” Labour. Tony Blair has about as much extra depth over Sarkozy as, oh, tooth enamel thickness.

If we *really* want to kick around governmental neoliberalism, it’s better to discuss Germany. Neoliberalism, for better or worse, was decisively the toolkit for attempting to fix many of Germany’s urgent problems, beginning with the reunification project.

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elm 08.05.11 at 1:57 am

@74

income for the top 1% jumped four points between 1986 and 1988

That graph concerns the top 10%, not the top 1%, but giving you the benefit of the doubt there, it’s not necessary to talk about 2 or 3 year windows in such a time-series. The trends (over the course of decades) are obvious and marked on the graph that you linked.

In any case, 1986 is not a local high.

It’s higher than 1985 or 1987 — the definition of a local maximum. That’s also obviously why you picked it. For that matter, it’s higher than 1989, 1990, and 1991 as well.

Not to me, particularly since over that same stretch of time the stock market has roughly quintupled.

This is just misdirection and dissembling. This data is about shares of income, not wealth, nor is it about nominal gains.

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bad Jim 08.05.11 at 4:05 am

The efficient markets hypothesis suggests that the best thing a corporate officer can do is boost the company’s market value right now rather than increasing its long term profitability. When the officers are incentivized to focus on the next quarter or two they cannot be expected to care about anything beyond that horizon, and recent economic history has shown that they generally do not.

Perhaps the masters of the universe would have done less damage to the world economy if outrageous levels of compensation were, instead of celebrated, simply not considered respectable, if billionaire hirelings were considered gangsters rather than entrepreneurs.

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Sebastian 08.05.11 at 4:07 am

Isn’t the time horizon stuff linked to the fact that the US disincentivized dividends three or four tax reforms ago? Should we look at changing that?

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piglet 08.05.11 at 4:32 am

soru 74: “I don’t see this much as a significant issue of inequality.”

If the CEOs get rich through behaviors that hurt low and middle income workers, that is a plausible driver of inequality. An what elm 85 said.

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bad Jim 08.05.11 at 4:52 am

Actually, under Bush the US nearly eliminated the tax on dividend income, which provides at best an indirect incentive to dividend-paying companies. What might help would be taxing capital gains at the same rate as other income.

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elm 08.05.11 at 4:56 am

Sebastian @87

Giving/restoring preferential tax treatment to dividends would still require corporate governance changes in order to have any real effect and appropriate corporate governance changes could solve the problem alone, so no.

You’d need an incredibly big carrot to incentivize corporate officers away from short-term thinking and (circling back around to theories of politics) that still leaves them in the drivers’ seat, influence/power-wise.

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elm 08.05.11 at 5:08 am

Bruce Wilder @ 80:

There’s a lot of unexamined talk about “wealth”, as if privately-owned “wealth” is always a positive good for society.

To borrow a rhetorical trick from the right-wing:

It’s important to remember that the modern concept of “wealth” is really just code for “government violence”. Unlimited quantities of wealth can only exist so long as government men with guns exist who to arrest and incarcerate you — at gunpoint — if you should so much as take a loaf of bread to keep from starving.

This notion that a person can own “wealth” is nothing but the monopolization of resources — supported by government violence and threats of violence — which privileges the few against the many.

Perhaps that has as many holes as the right-wing “taxes = theft” line, but I thought I’d try it on.

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Soru 08.05.11 at 5:15 am

@piglet 88: add _direct_ and _in itself_ to the statement that economic inequality is not the issue here. In fact, I suspect the par rises in question may well be worse, and less fixable, for growth than they are for equality. The experience of the UK would certaintly suggest that.

@kw 79: I did miss out a logical step. A payment too big to plausibly be a salary can be fraud instead of a bribe. @18 and @42 are basically disagreeing about the relevant proportions of the two cases.

In the limit, I would accept might be cases where the sole purpose of the bribe is to try and dissuade the CEO from committing fraud on their own behalf. But even that hardly seems an ideal arrangement.

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elm 08.05.11 at 5:56 am

Soru @ 74

Whether you judge significance factually or relative to likely political effectiveness, this is not an aspect that is going to rate highly.

It may have more political traction than you’d think. This piece United in Our Delusion, by David Cay Johnston demonstrates widespread ignorance about wealth distribution and a population that would (in the abstract, at least) prefer a more equitable system and believes that our actual system is much more egalitarian than it is.

A political movement built on educating the public about wealth & income inequality, the power imbalances that entails, the means by which it perpetuates itself, etc… could be effective. It’s not guaranteed and wouldn’t be simple or easy, but USians apparently do care about fairness though they’ve been intentionally mislead about the actual state of things.

I also think the labor rights/workplace safety/environmental protection angle is worth pursuing. The advantage of that aspect is that your audience is well-defined and it’s easy to explain what you’re going to do for them in concrete terms (which trumps abstract considerations about fairness).

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soru 08.05.11 at 6:34 am

@93 except that that article _is_ arguing for the implementation, in the USA, of UK New Labour policies: redistribution through tax-and-spend to the not-quite-poorest.

It is making the case that with the right presentation, those policies could be politically saleable, which certainly seems plausible. I think a bigger doubt here would be more about the institutional capability of the US government to deliver them. The UK government, with no term limits, a big majority in the only important legislative chamber, firm laws on campaign contributions, the BBC in existence, and even the the consent of Murdoch, managed to deliver a redistribution of a size indicated in the diagram. With none of those factors in place, and nothing obvious to replace them, the corresponding figure for the USA seems unlikely to be of the same size.

But the whole thrust of this disagreement between Henry and MY is that, even in the UK, Henry calls them ‘failed’.

Which I would agree with in the sense that they only boosted the poor, not constrained the corrupt.

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andrew 08.05.11 at 6:44 am

Tell me if I’m mistaken, but I think that even if you’re not on “the left,” the data will lead honest people who make good-faith arguments to pause when it comes to income distribution. Tell me if I’im mistaken, but even Daniel Drezner said something once like “You all know I’m not really too concerned about the income distribution, but these numbers even gave me pause!” (shows a chart or something)

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d 08.05.11 at 7:05 am

A purely terminological question: how academically well established is the term much used on CT lately, ‘theory of politics’? Like the Cosma text I was also under the impression that much that goes under the heading of Political Theory has studied the topic under various other names. I prefer Erik Ohlin Wright’s terminology: a theory of social transformation (and its elements: theory of social reproduction, gaps and contradictions of reproduction, trajectories of unintended social change, and transformative strategies) (ERU p273)

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Chris Bertram 08.05.11 at 7:15 am

andthenyoufall:

Your reading skills really aren’t that brilliant, are they? The sentence you quote is in a footnote which refers to the economist being interviewed saying that one way to avoid a precipitous drop in UK living standards will be to retrain the workforce so that they possess skills that command a premium in UK markets. In other words: education. I then allude to the fact that “education, education, education” was a central slogan of Labour in 1997 and remark that they nevertheless found it hard to make much of an impact on the schools. Anyone familiar with the history would have read that correctly.

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Chris Bertram 08.05.11 at 7:43 am

Incidentally, it is really quite funny to be lectured about about how I don’t grasp how “dixiecrat” politics works, and that’s what’s wrong with me, in the context of a a discussion I started about _Britain_ and New Labour. I wonder if the author of that comment has a good feel for British politics?

But I guess that quite a lot of what’s going on in these threads is actually driven by cross-society misunderstanding and aspiration. The original post in which I claimed that New Labour had abandoned the traditional redistributive goals of the left in favour of “rising tide” and that this hadn’t worked, wasn’t based on any statistical data but on the experience of living and working here, of seeing the streets of places like Anfield or the Welsh valleys and noting that the social problems that New Labour faced in 1997 are still with us pretty much as they were then. I really thought that what I was writing would be pretty uncontroversial. Now I can certainly imagine a piece of statistical research that would lead me to reconsider that view, but the Kenworthy graph just isn’t that piece.

Yglesias, on the other hand, doesn’t live here. He’s churning out his little posts based with a view of Britain essentially shaped by a skim of the New York Times and informed by a desire that US politics go better than it has. From this perspective, and compared to the US Democratic party, New Labour looks absolutely brilliant! (That’s the measure of how screwed you guys are, btw.) So when he sees scepticism about that supposed brilliance, his reaction is to push back. Well I can see how that happens.

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Chris Bertram 08.05.11 at 7:53 am

And a nice piece at Jacobin on all this

http://jacobinmag.com/blog/?p=891

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K. Williams 08.05.11 at 8:25 am

@85

“This is just misdirection and dissembling. This data is about shares of income, not wealth, nor is it about nominal gains.”

I don’t know what this means. The income that’s reported on tax returns, and that Piketty and Saez are using in their graphs, include capital gains, and stock options were/are heavily concentrated among the top 10% (actually, the top 1%), so obviously the performance of the stock market over this period matters.

And I’ll just reiterate that you haven’t offered a convincing explanation of the post-1986 data. You write “it’s not necessary to talk about 2 or 3 year windows in such a time-series.” But of course it’s necessary if the time-series takes a sudden jump onto a new, and permanently higher, plateau. Of course the trend upward is clear. But the question is why, beginning in 1986, does the share of the top 10% (apologies for the earlier typo) jump upward by four points, never to go back down again (with the exception of the crash year)? Piketty and Saez (and you) seem to be assuming that the numbers all balance out over time, so that by the early 1990s any effect of the tax reforms would be washed out. But this is a mistake — essentially, 1986 represents a break in the data series, analogous to the one in the CPS data between 1992 and 1993. Just as studies using CPS data have to acknowledge that pre-/post-1992/1993 comparisons exaggerate the differences between those two periods, studies using tax data should acknowledge that pre-/post-1986 comparisons exaggerate the differences between those two periods.

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Philip 08.05.11 at 10:06 am

Chris, I just re-read uor original post and your argument seemed to be that the poorest people would be worst affected by clawing back the financial deficit, which seems pretty clearly to be the case. You didn’t make any claims as to whether the rising tides claim worked for the majority of the New Labour governments, but that in the end it failed.

Even if the social problems are the same now as in 1997 there was a long period when things were better for most people, and I don’t think that should be ignored.

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Chris Bertram 08.05.11 at 10:13 am

Hi Philip,

This is what I said:

“New Labour, taking their cue from the Clinton Democrats, abandoned the distributive objectives of the left on the basis that the rising prosperity engendered by growth, markets and globalisation would benefit everyone. Well it hasn’t.”

Which was a pretty reasonable thing to say in 2010, I think. Did things get better in the early years of NuLab? Well yes, but see that Jacobin link in my comment above for some commentary.

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Philip 08.05.11 at 10:47 am

Yeah Chris, I agree with the Jacobin link. The growth under New Labour was unsustainable and when it went the structural problems remained so the poorest are hit the hardest.

Matt has accepted that inequality rose under New Labour but argues that this does not matter because most people’s income increased. However the same is true under the Thatcher-Major governments, it’s just that the increase in inequality was even greater.

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Bloix 08.05.11 at 11:26 am

“few tenured professors at reputable Anglophone universities actually envy the lives of CEOs earning above the “top one percent” threshold. “

By “reputable Anglophone universities,” Yglesias means Harvard, Yale, Oxford, and Cambridge.

Yglesias is a very bright young guy, but the social world he’s been exposed to is shockingly limited.

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donpaskini 08.05.11 at 12:02 pm

Resolution Foundation have done interesting work on this subject – they’ve published research on the limitations of the strategy of using income transfers to compensate for rising wage inequality. They argue that the main way to tackle inequality to focus on increasing the share of the value generated by the UK economy which goes in wages, which fell through Labour’s time in office.

Their Chief Exec used to be Gordon Brown’s Deputy Chief of Staff, and they are close to the current Labour leadership.

(That said, I think that one key lesson to draw from Labour’s time in office was not that they did too much in the way of cash transfers, but too little – poverty fell amongst the groups which they targeted and rose amongst those which they didn’t).

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Josh G. 08.05.11 at 1:03 pm

Chris Bertram: “Yglesias, on the other hand, doesn’t live here. He’s churning out his little posts based with a view of Britain essentially shaped by a skim of the New York Times and informed by a desire that US politics go better than it has. From this perspective, and compared to the US Democratic party, New Labour looks absolutely brilliant!

That’s because in the UK, a governing majority is actually allowed to govern. In the US, there are a thousand different ways for a minority to block the majority’s will, and the Republicans have discovered and used almost all of them.

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Tim Lacy 08.05.11 at 3:22 pm

On class resentment, the issue shouldn’t be out of bounds. Rather, let’s assume that class resentment exists and question whether or not it’s valid. In my view, there are many valid reasons to lament and resent class inequality as it currently exits:

1. Inequality in terms of wealth and wages has increased over the past 20-30 years. It’s a fact.
2. That inequality is suppressing consumer demand, which apparently feeds 30 percent of our smoke-and-mirrors post-industrial service economy.
3. The wealth class—whether you define it as the top 20, 5, or 1 percent—is flaunting their advantage via conspicuous consumption.
4. The growth of inequality is not related to workers not working hard enough or inefficiently, it’s the result of policy decisions and the all-out-war against unionism—the only mechanism that protects labor income.

So, it seems to me that resentment is perfectly justified, perhaps for the first time in my 40 years of life—and 25 as a working citizen. It’s a rational, common-sense reaction to cross-checked facts.

In fact, I’ll go further and say that we need about 10-15 years of class resentment politics to get our society on a footing that might approximate what Baby Boomers experienced for most of their lives. – TL

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Watson Ladd 08.05.11 at 4:01 pm

Class isn’t determined by money. The small shopkeeper is just as much a capitalist as the big industrialist, and the well-payed lawyer is just as proletarian as the janitor. One set of people sell their labor for money, the others own capital. So a discussion of inequality becomes complaints about how much better some workers can work then others, because there are not that many capitalists. Is restricting the income of neurosurgeons really worth it?

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shah8 08.05.11 at 4:55 pm

Well, first of all, let’s do admit that there are extremes of policy in both direction–as in, say, Saudi Arabia’s distributive policy. One can even critique the Alaskan model, and contrast that with Norway’s policy on a meta level.

Now *Chris Bertram*, I’m operating out of a knowledge of Southern history. I think about what politics was like in, say Greenville MS, Nashville/Birmingham/Atlanta/Richmond, or Montgomery AL. I’m operating out of an intense awareness that the politics of redistribution is never liberal here, but a contest between multiple, often very illiberal castes/classes (even when you consider nonwhites, like creoles) that often end up in lynchings of whoever the outsider is. There has been several attempts of redistribution policies here, and they’ve largely all failed. The *only* thing that really worked is industrial (labor)-driven growth. And workers were dirt fucking poor, but they had the bare necessities, and they contributed excess cash and time to making the local society more liberal. To the point that rural forces, by direct or indirect means, crushes any flowering. From the start of this country until the Boll Weevil, rural forces always managed to get the bulk of any redistribution policies, and they’ve always manage to block, for the most part, government improvements, like roads, bridges, or anything else that might empower the wrong people. The kind of massive growth of national industry, starting in the 20’s, was the only thing that really brought an end to Police State South, not just Jim Crow.

That sort of dialectical flow is what I perceive that you’re missing *Chris Bertram*, and I think your perspective, in its eagerness for a conflict narrative replete with heroes and villians, misses is that everyone has agency. There are more classes and castes than, say, three. There are many political gambits and many permutations in the sequential iterations. I think what *Chris Bertram* misses is how much a subsequent policy gets adherents from frustrated reform types surrounding the previous policy.

This is politics. It’s inherently messy, cynical, and all those other things a tidy person is repulsed by, but you can only grasp it by being highly empathetic to the parties and their aims. Of course, then your actions are contradictory, with subtexts as well–repulsive to anyone who’s not in the game…

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Chris Bertram 08.05.11 at 5:00 pm

shah8 – I think you just failed the Turing test.

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shah8 08.05.11 at 5:02 pm

/me does a mawkish smile…

Of course, now UK is UK and US South is US South…

Still, I am very sure that with a university library card, I can still beat you down, Marx style.

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Alex 08.10.11 at 2:28 pm

The basic problem is that British economic growth over the past two decades is dependent on the self-same economic processes that do, in fact, aggravate income inequality: things like professional, media, legal, and financial services; things like export-oriented luxury services; things like the inward money flows from wealthy foreign, especially Gulf, entities and individuals.

This isn’t an argument, it’s a caricature.

Further, why on earth should it weaken your argument that you don’t envy CEOs their money? Surely it should rather strengthen it? I’m convinced that the UK would be a better place if the richest were less rich and the poor were less poor, even if this didn’t affect me just above the median…

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