• David Raber

    For Americans, our economics has become a system of religion, politics, philosophy and everything all rolled into one. “The business of America is business,” said Calvin Coolidge, and America believes that in its bones until something comes along (like the Great Depression) to make people lose faith in the Horatio Alger Story. Then over time, the painful knock on the head is forgotten, and laissez-faire is restored, as shown in graphic form on Krugman’s chart.

    It was Austrian or Chicago economics, I suppose, if not Adam Smith himself, who convinced a lot of people that the free market system is not just one system among many possible ones but basically enedemic to the human condition–or in other words, both What Is and What Ought to Be. So we have “economic realities” just as real in most Americans’ eyes as the meteorological realities that cause delightful sunshine and hurricanes.

    The body politic needs to figure out once again (will it take another disaster like the Depression?) that economics and public policy is not a mater of either/or–either the “economic reality” of free markets or the horror of man-made “socialism.”

    There is also the kind of social democracy that rules in “Old Europe,” where people remain about as free as we are, and also reasonably enterprising, but also where (as Michael Moore said of Canada, I heard), no one goes bankrupt due to medical bills– and all because people there have been bolder and smarter than we are in daring to challenge the destiny of “economic reality.”

    And as far as I can tell, social democracy is, in effect, Catholic social teaching put to work, albeit imperfectly (and bracketing the whole issue of abortion, of course). As I recall, there was an article in Commonweal some time back that made a point similar to this.

  • Blackadder

    Morning’s Minion’s post contains a lot of statistics (as in, lies, damn lies, and), and thus any counter-argument is going to have to get fairly technical. But before we get into that, a bit of a reality check is in order. From some of MM’s rhetoric (“laissez-faire restored” etc.), you might get the impression that the government is a lot smaller and less intrusive now than it was in, say, 1960. But of course that isn’t the case. If anything, the pre-Great Society era of 1945 through 1964 was closer to a laissez-faire vision of society than is America in 2007, though neither are particularly close.

    Second reality check. At one point in his post MM says that “the median male worker saw no improvement in his living standards in over 30 years.” This is just silly. As I’ll attempt to show later, MM’s claims about wage stagnation are incorrect, but assuming for the moment that he’s right, this hardly establishes that the standard of living of the median male worker is no better today than 30 years ago. Even if real wages hadn’t risen, the quality of goods and services has increased significantly. No one would trade today’s health care for the health care of 1977, today’s appliances for the appliances of 1977, etc.

  • Blackadder

    Moving on to the substance, there are a couple of things to note about Krugman’s chart. First, note that the chart tells us nothing about perchange of income earned by the poorest 10% of Americans, or the poorest 50%, or even the poorest 80%. The chart shows only deals with the richest 10% of Americans. It says nothing about what percentage of income went to the bottom 10%, or the bottom 50% or even the bottom 80% of Americans, or how these percentages have changed over time.

    Second, Krugman’s figures are pre-tax. Given that the top 10% of wage earners pay around two thirds of federal income taxes, this is hardly insignificant. If we adjust income to reflect taxes paid and government benefits received, we find that the top 20% of wage earners make around 40% of the countries income, while the bottom 20% makes around 10%. We also find that the percentage of income received by the bottom 20% of Americans has remained relatively constant since the mid-1960s. A full analysis can be found here:


    Of course, even this is somewhat misleading, as it gives the impression that which quintile a particular person belongs to is the same from year to year, when the reality is that people are constantly moving up and down the income ladder:


    The upshot of all this is that income inequality is not nearly as great as Krugman’s chart might seem to indicate. Still, no one disputes that income inequality has risen in the last 30 years. MM suggests that changes made by the Reagan administration led to de-unionization and changes in cultural norms regarding money and greed. The problem with this explanation is that both the trend towards de-unionization and the trend of increasing income inequality started before Reagan took office. In fact, the decline in union membership between 1960 and 1980 was greater than the decline between 1980 and 2000. Whatever one thinks of the Gipper, he obviously didn’t have the ability to travel backwards through time.

    If I had to offer an alternate explanation for the increases in income inequality over the last 30 years, it would be: computers. A lot of people have made a lot of money over the past couple of decades using information technologies to transform the way our economy operates. Arthur Goolsbee, one of Obama’s chief economic advisors, estimates that more than 80% of the increase in earnings disparities is due to technology and the “information economy.”


    If we were to read literally Blessed John XXIII’s words about economic prosperity being measured by distribution rather than wealth, we would have to conclude that the computer has been bad for the economy, and that we would be a more economically prosperous nation (note: not more equal or more just, but more prosperous) if computers had never been invented. Personally, I have too much respect for Blessed John to think that he meant anything so ridiculous as that.

  • David Raber

    Blackadder, thanks for bringing us back to reality. It is so importrant that we face up to the economic realities, as I mention in my previous post.

    But I feel the main issue may not be so much how big the pie is, or even how big my piece is, but the relative sizes of the pieces going to different parts of the populace–and, incidentally, how many people in a household need to be working (at how many jobs) to get a decent chunk of the pastry.

    Reality check #3: There are probably millions of Americans who would trade the health care of today for that of 1977: Those who were covered by a 1977 health plan at that time but who are now not covered by a 2007 health plan.

    Reality check #4: A marginally better standard of living (meaning mainly better gadgets and toys) may not feel that great when a person justifiably fears he could lose his job tomorrow and/or become liable for hundreds of thousands of dollars in medical bills to pay for Mom’s brain surgery.

  • Blackadder

    There was one other thing I wanted to mention. MM notes that while productivity has increased significantly in the last 35 years, while median wages, depending on which numbers you look at, have risen just enough to take account of inflation. According to a paper by the Federal Reserve of Minneapolis, this difference is due to three things:

    1) technical differences in how inflation is calculated;

    2) the fact that the median wage statistics don’t take into account non-wage fringe benefits such as health care; and

    3) the fact that productivity gains aren’t spread evenly among the population, but have been concentrated in certain areas.

    When the first two factors are taken into consideration, it turns out that median hourly wage increased 28% between 1975 and 2005. And when we look at mean (or average) wages, which is a better proxy for increased productivity than median (or middle) wages, the rest of this difference disappears.


  • Blackadder


    There aren’t millions of Americans who had a health plan in 1977 but don’t in 2007. People without health care in America are disproportionately young and healthy, and increases in the number of uninsured in the past few years have come mainly from the foreign born population.

    I don’t deny that there is hardship and suffering in America today. What I deny is that for most people it has gotten worse in the last 30 years. It clearly hasn’t. People feared losing their jobs in the 1960s too, and if a man’s mother needed brain surgery 40 years ago, chances are she would not have gotten it because the procedures and medicines involved hadn’t been developed yet.

  • Stuart Buck

    Blackadder — As you saw in the earlier thread, when I objected to big business being given the power to have their mom-and-pop competitors thrown in jail, MM said that I was an “extreme laissez-faire liberal.” The term “laissez-faire” as used here is nothing more than an insult; it isn’t intended to be a literal or accurate description of anything.

  • http://darwincatholic.blogspot.com DarwinCatholic

    Blackadder underlines a number of good questions involved in the data here. Another that I’d point out is the oddity of comparing the real incomes of GM employees in the 60s to WalMart employees now, since the two companies fill very different niches. GM was seen as a solid, middle class income source at which people put in forty year careers. WalMart is not imagined by anyone to be any such thing.

    If one wanted to make a valid comparison, one might compare GM employees in the 60s to Microsoft employees now; or compare WalMart employees now with Woolworths or PigglyWiggly employees in the 60s.

    Certainly, lots of people agree with executive compensation can get massively out of hand. This is not something that only “progressives” are talking about. The Wall Street Journal and various stock holder groups have campaigned to get such things under control, and in some ways recent executive packages have showed notable restrain compared with ten years ago.

    Also, I think that MM and his sources to themselves a serious disservice by looking at individual rather than household incomes. One of the major changes that happened during the 70s was the nearly complete switch from a single income household model to a dual income model. If it’s the case that individual wages have remained comparatively flat, that’s partly because most households now have two incomes, thus doubling their household income.

    Now, I for one do not like this development, in part because it makes households like my own (single income, three kids and counting, homeschooling) have to fight twice as hard to make the same progress. Although I’ve been fortunate to harness the productivity of computers and make a very decent wage, that wage is in part set by the fact that my co-workers (who make the same as I do) are almost all in two income families.

    In talking about whether things have gotten better or worse over the last thirty years, it seems like some figures on things like percentage of take-home spent on food, average housing square footage per person, home ownership percentages, etc. would be in order.

    I realize that the image we’re supposed to get from the graph is that others are actively being pushed down by these rich people, but frankly, if we ignore the rich for a bit and see that the poor and middle class are doing as well as they ever have, does it really help us to sit around engaging in envy because Bill Gates and Warren Buffet are better off than we are?

  • http://www.patheos.com/blogs/voxnova/ Morning’s Minion

    OK, some of you are confused here.

    Darwin– I did talk about median household income. It increased by 16 percent. What I noted was that much of that was driven by better earnings potential of women. I have no problem with that. But it does raise the issue: since men’s income is stagnant, families need two earners to get by– is this a positive development by Catholic social teaching?

    And how can you possibly assert that the “poor and the middle class are doing as well as they ever have” when that is exactly the opposite of what the evidence shows? You ask about the consumption basket– the numbers for “usable productivity” are based on CPI not output deflator, so take these things into account.

    Blackadder– many points, some good, some bad. First, absolutely wrong to say that mean income is better than median. If Bill Gates walks into the bar, the mean income jumps through the roof. It would be quite wrong to say that the bar patrons are better off. Median income is the way to go, as pretty much every researcher aknowledges.

    You can a number of technical points which I think are included in the analysis. Specifically, we adjust gross productivity to get a concept of “usable productivity” that takes into account many of the factors you mention (and some you don’t mentionm) including the growing portion of output that goes to depreciation associated with improving technology (computers), the fact that consumer prices haev risen far faster than investment prices (again, computers), and the increasing price of non-wage benefits. That takes us from economy-wide productivity growth of 66 percent to 36 percent. It still shows that median wages should haev risen by 20-25 percent had the institutions and norms that existed prior to the 1970s been followed.

    You also seem to believe in the skill-biased technical change story (computers again!). But, despite its popularity in popular discourse (including by the Obama guy), there is precious little evidence that this has been behind the rising inequality. Specifically, one does not see a huge increase in the relative wages of people trained in these new skills. Also, as I pointed, Europe enjoyed the same technology but did not suffer the same disparity.

    On the point about the quality of goods and services, you are basicallly saying that the CPI overstates inflation as it doesn’t take account of new goods and services with higher quality. That is true, but it works both ways. As Krugman notes, quality of life has diminished in many other ways including through more pressure on familis to work, difficulty in getting into good schools, congestion, and difficulty securing adequate health care. Plus, since the health care component of the CPI rose more rapidly than other components, that means (as Dean Baker makes clear) that an extra dollar of health care spending provides a smaller increase in real consumption than a dollar spent elsewhere.

    Yes, the trends in de-unionization took place prior to Reagan. I never said otherwise. I merely said that the changing norms and institutions were most fully realized by the ascent of Reagan to power.

    On the distribution point: international evidence shows a much more limited trend towards increased inequality in countries like Canada and the UK, but hardly any in places like France and Japan. Plus, I believe you were the one who referenced the paper by Brandolini and Smeeding (http://www.apsanet.org/section_651.cfm), which showed that America’s inequality was far more pronounced in post-tax than in pre-tax incomes. They also show that the US has the most persistent trend in rising inequality through 2000, and is an outlier among rich nations. In all countries, the tax and transfer system reduces inequality, but this effect is really small in the US. Thus the Reagan era “reforms” (cutting marginal tax rates on top incomes, reducing progerssivity, curtailing benefits) only magnified the prevailing trends in pre-tax incomes.

  • Michael Enright


    I think that you are distorting the paper referenced by Blackadder. I think the point was that within a number of countries, pre-tax inequality was similar while post-tax was not. All that means is that US post-tax inequality is not as good as Western Europe. I don’t remember this saying anything about absolute inequality in the US being far more pronounced post-tax than pre-tax, only in a comparative sense with the rest of the world. Actually, you contradict this yourself when you say “In all countries,the tax and transfer system reduces inequality”.

  • http://darwincatholic.blogspot.com DarwinCatholic

    I did talk about median household income. It increased by 16 percent. What I noted was that much of that was driven by better earnings potential of women. I have no problem with that. But it does raise the issue: since men’s income is stagnant, families need two earners to get by– is this a positive development by Catholic social teaching?

    Yes, but then you turned around and made your point about stagnation/backsliding based on men’s wages.

    Look, I agree that it’s a serious problem from a point of view of Catholic teaching that there has been a drive to break households up into individual workers. However, I’m not clear how any of the policies I’ve seen you advocate (higher taxes on top income groups, state subsidized healthcare and daycare, etc.) would help that.

    But then, I think that one of the main ways we need to work towards a more Catholic society is by simply insisting on living it, not by seeking out ways to impose it via unions or legislation (neither one of which really seems like a very good tool for such.)

    And how can you possibly assert that the “poor and the middle class are doing as well as they ever have” when that is exactly the opposite of what the evidence shows?

    I don’t assert it. It was a conditional statement: If it were found that the poor and middle class are not worse off (and I’m not convinced you’re proved they are) then why should it worry them that the wealthy are? Isn’t wanting them not to be better off simply because we’re not basically just a case of envy?

    You ask about the consumption basket– the numbers for “usable productivity” are based on CPI not output deflator, so take these things into account.

    Okay, but then there are questions we have to ask. A much higher percentage of Americans own their homes (about 70%) than was the case in the 40s-60s, and the average home size has gone up a lot. Many more Americans own cars, and own more cars. We also own a lot of things that didn’t even exist back then.

    Now, if Christianity teaches us anything, it teaches us that having material possessions does not guarantee us happiness — and that’s certainly been borne out by the moral and societal illnesses of the last forty years. I’m not saying that the fact that the poor today have cell phones and cable TV means that they’re better off.

    And yet, it certainly seems to speak against a narrative in which one argues that everyone but the top 10% is worse off than before.

    As someone who lives in the 50th percentile, this just doesn’t seem credible to me.

  • http://www.patheos.com/blogs/voxnova/ Morning’s Minion

    Michael: everything I wrote about that paper is lifted directly from that paper itself.

  • http://www.patheos.com/blogs/voxnova/ Morning’s Minion

    Darwin: I’m not arguing for a more “Catholic society”; I’m the first one to recognize the fallacy of utopian thinking. Going al the way back to Rerum Novarum, the church has recognized that unions are a core element in any organic conception of society. They are the ultimate subsidiary institution that represent workers. Clamping down on unions in general (and I’m talking about the right to organize and to negotiate on behalf of workers, as opposed to going against Jimmy Hoffa-style corruption) is, I believe, a crime against social justice.

  • Blackadder

    Morning’s Minion,

    I agree that median wages can be a very important indicator for certain purposes. But if you are trying to figure out whether increases in productivity have led to corresponding increases in wages, they are the wrong indicator to use. Suppose that the bulk of increased productivity is in jobs that are already above the median hourly wage. Even if increases in wages matched increases in productivity, we wouldn’t expect median wages to rise much. And in fact this is exactly what has happened.

    You say that the increases in inequality in the U.S. can’t be due to computers, because the same changes occurred in Europe. But as you yourself note, pre-tax inequality in Europe in more or less the same as in the U.S. So far from disproving my technology thesis, Europe tends to confirm it.

    As for the difficulty of securing adequate health care, if people were content with the medicines and treatments available thirty years ago, there would be no health care crisis. The problem is that people’s definition of what constitutes “adequate” health care keeps expanding. The same is true for other goods and services. People today would consider it an unconscionable hardship to live in a house without air conditioning, or electricity, or indoor plumbing. Heck many people would consider it an unconscionable hardship if they had to live without the internet and cable TV. Yet this is how everyone, from the richest king to the poorest peasant, lived until quite recently. As a society gets richer, people’s standards of what constitutes adequate housing, adequate health care, etc. also rises. But that hardly means that we haven’t gotten richer.

  • kalle anka

    just a small aside on the skill-biased technical change: it ain’t just the computer. it’s pencils, too, as was elegantly shown in a 1997 QJE article by Dinardo and Pischke: THE RETURNS TO COMPUTER USE REVISITED: HAVE PENCILS CHANGED THE WAGE STRUCTURE TOO?

    followed by another aside: i’m a tad bit surprised that we shouldn’t consider it a huge drop in living standards when today, it takes two people per household to afford the same living that one income bought back in the seventies. if you pay my spouse double, i’ll happily stay home and will feel muuuuuch better!

    but more generally, i’m quite certain that we’ll yet again see that both Marx and von Hayek were right. you need inequality to progress, and inequality will create its own momentum to strengthen social justice and (lessen in-) equality. the rest seems to be mostly political rhetoric supported by one piece of data or another. and, sadly, that’s what i mostly see in this thread. yes, we all cherish opportunities to get ahead and increase that nest egg even further, but what sets some people apart is that they don’t lose sight of their social and moral responsibilities along the way. so go out and accumulate riches, but then give even more richly.

    happy Nikolaus Day!
    (yes, indeed, today, parts of socialist europe celebrate the memory of a rich guy who cut his coat in half to share with a beggar)

  • Blackadder

    By the way, I also am concerned about the fact that more families need two incomes to support themselves than in the past (though I tend to think that women entering the workplace was more the cause of this need than its effect). I would therefore be open to having a “mommy wage” like they do in some Baltic states and/or an increase in the Earned Income Tax Credit (which has an awful name but actually does what the minimum wage in supposed to do without all the negative unintended consequences).

  • http://darwincatholic.blogspot.com DarwinCatholic

    I’m not arguing for a more “Catholic society”; I’m the first one to recognize the fallacy of utopian thinking. Going al the way back to Rerum Novarum, the church has recognized that unions are a core element in any organic conception of society. They are the ultimate subsidiary institution that represent workers. Clamping down on unions in general (and I’m talking about the right to organize and to negotiate on behalf of workers, as opposed to going against Jimmy Hoffa-style corruption) is, I believe, a crime against social justice.

    I have no problem with the description of worker associations in Rerum Novarum, but I’m rather dubious as to how much modern labor unions resemble that ideal.

    Personally, I’m very glad that unions have no play in the area in which I work (marketing analytics) and I would be at some pains to remain in areas where union membership is not required. Not only to most American unions funnel large amounts of money into causes I consider immoral, but in those situations where I have observed them they also seem to reinforce an entitlement mentality (rather than a productive mentality) and a tendency to make people “wait their turn” and be rewarded strictly on the basis of tenure rather than skills and quality of work. In that sense, I think they tend to degrade rather than accentuate human dignity, and they contribute to the sort of lack of focus on quality and excellence which resulted in the domestic auto industry implosion in the 70s and 80s.

  • http://www.patheos.com/blogs/voxnova/ Morning’s Minion

    Blackadder— we’re finally starting to agree! The EITC is a great innovation that really helps the working poor.

    On your other point about changing standards of living: sure, the the issue is how the pie should be shared today. I’m sure that people during the Gilded Age were making very much the same point: sure, the workers are poor, but think how much better they are than their forefathers in pre-industrial times?

  • Blackadder

    Morning’s Minion,

    No doubt people did make that point during the Gilded Age, and they were right. To me, the question is not how the pie should be shared, but how to make the pie bigger.

  • M.Z. Forrest

    Can you not ask both questions BA?

  • Blackadder

    By the way, Darwin, I see that you live in Austin. I’m from Austin too. Great place, but I fear we may give people the wrong idea about the typical Austinite’s politics. :)

  • http://darwincatholic.blogspot.com DarwinCatholic

    I would therefore be open to having a “mommy wage” like they do in some Baltic states and/or an increase in the Earned Income Tax Credit (which has an awful name but actually does what the minimum wage in supposed to do without all the negative unintended consequences).

    I’m not entirely sure what I think of these, it would depend on the implementation. (I think the EITC is a good thing within certain areas, but it strikes me as wrong that I was getting some until fairly recently, when I’m sure that couple hundred dollars could have gone to someone more needy than our family was at the time.)

    Another thing I think would clearly be an improvement, however, and would have both pro-family and anti-poverty force would be to calculate income tax based on income per household member, rather than just single or married with dependants. Thus, a family of five with one or two incomes would be taxed at total income divided by five rather that total income with dependant exemptions.

    Well, I’m up north of town in the conservative suburbs (just inside Williamson County, so I get a US Representative I agree with) — but even so we probably give these Easterners and Houstonites a pretty SKUed idea of what Austin is like. :-)

  • M.Z. Forrest

    This is one of those times where I have to disagree with all of you and come out against direct cash subsidization. While I have rec’d benefit from the EITC, I think it is poor way to provide welfare. Brad deLong argues also that it is a grossly inefficient way to provide welfare, althought he still supports it.

  • Blackadder


    You can ask both questions, certainly. Personally I would follow Anscombe in thinking that inequality as such is not something that it very troubling, but it may be troubling for instrumental reasons. I also think that if we are going to take steps to decrease inequality, we should make sure that they don’t have the side effect of slowing growth.

    I’d be interested in hearing your arguments against the EITC. From what I’ve seen it tends to be fairly beneficial, and far superior to its main competitor, mandatory minimum wage laws.

  • TeutonicTim

    I was going to comment, but came late. Besides, DarwinCatholic and Blackadder already said anything worth saying!

  • http://www.patheos.com/blogs/voxnova/ Morning’s Minion

    MZ: can you provide a link to Brad’s discussion of the EITC? That surpises me. Most economists love the EITC because it has few disincentive effects.

  • M.Z. Forrest

    But the EITC is a program that uses the IRS to write lots of relatively small checks to tens of millions of relatively poor people who satisfy picky eligibility rules. This is not the IRS’s comparative advantage. The IRS’s comparative advantage is using random terror to elicit voluntary compliance with the tax code on the part of relatively rich people. The EITC is a good program, but it a costly program to administer, and it is administered imperfectly to say the least.


  • M.Z. Forrest

    Eh, here is the original with a little more discussion on min wage.

  • Blackadder

    Here is a more positive account of the EITC, also by Delong, from 2000:


  • http://www.patheos.com/blogs/voxnova/ Morning’s Minion

    OK, he is focusing on administrative complexity rather either poverty alleviation or work incentives.

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  • David Raber

    Blackadder, I did some spot checking just to make sure that my general impression was not a result of indoctrination by the liberal media, and it seems to be the case that the percentage of Americans not covered by health insurance has gone up streadily since 1977.

    As for the level of suffering due to our economy today compared to forty years ago, my point was about anxiety specifically, but I don’t have any statistics on that.

    And we could argue about these statistics endlessly. The real crux of the biscuit is how we as Catholics ought to look at our system, understand it and deal with it as employees, bosses, mommies, public policy makers, and so on.

    What is the nature of the market system after all? A view which I think does not conflict with Catholic teaching sees it as a necessary evil, like for example the armed forces or the police.

    Can we doubt that if we did not live in a fallen world, we would not need armed forces, police, or a market economy?

    The market economy helps keep us sinners in line (See St. Paul: You don’t work, you don’t eat), and gives us incentives to work hard and be creative, incentives such as we sinners understand.

    This is not the whole picture, but a great part of it, and it does not necessarily paint the market economy in entirely dark tones–not at all. It is an evil, yes, but also quite necessary–like the police, again. We wish we didn’t need police–and we know the police are prone to act badly from time to time, and we sure don’t want to see those flashing lights in our rear-view mirror, and we notice how that one cousin became a cop and that other one a mafioso. . . and yet we honor the occupation as a career of service, which it is at its best, and we sure appreciate that blue uniform showing up to help when we are in trouble.

    So, emphasixe the evil or the necessary as you will, but both aspects are in there.

  • TeutonicTim

    I’m going to be obnoxious for a second and offer a separate interpretation of that graph:

    Lyndon Johnson’s “great society” programs started in 1965 and went through his presidency. His vast increases in “social programs” caused many people to embrace them and drop into a mode of apathy. Since then, more and more people have been born into this system causing the burden on those outside of the system to become higher and the amount of people sharing in the wealth of the economy to plummet. You can see the effects of this on the graph where the line skyrockets right around the time these programs would start to have an effect on the economy.

    Sounds about as plausible as the evil reaganomics.

  • http://www.manlymen.org Tony

    You talk like inequity is a bad thing.

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