J. Bradford DeLong's Blog, page 1129

Over at Equitable Growth: At This Point in Time, a (Larger) National Debt Would Indeed Be a National Blessing: (Late) Tuesday Focus for October 28, 2014

Over at Equitable Growth:

There are two questions that must be answered in the process of figuring out weather having the government borrow money and spend is a good idea:

What is the money being used for?

How expensive is the money to borrow?

Back in the Reagan-Bush I years--the steep run-up in the debt-to-annual GDP ratio in the 1980s and the first third of the 1990s:

The money was used to rapidly build up the U.S. military to counter the Soviet Union's overwhelming might--an overwhelming might that existed only in the fantasies of the neoconservatives who ran the "Team B" exercise initiated at the CIA by George H.W. Bush.

The money was used for tax cuts for the rich in the hope that increasingly incentivizing entrepreneurship would accelerate economic growth above the pace of the 1970s--a vain hope indeed.

The real interest rate at which the U.S. government could borrow was relatively high--between 3.5%/year and 8.5%/year, and averaging 5.5%/year in the 1980s. Plus there was the fear that as the debt-to-annual-GDP ratio rose further without any strategy for ultimately amortizing the debt, the real interest rate would rise higher. Plus there was the fear that the real interest paid on the debt understated the cost to the taxpayer of carrying it because a high debt would create expectations that inflation would rise--expectations that would require unemployment semi-permanently above the NAIRU to avoid another inflationary spiral.

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Thus from the perspective of the start of the Clinton administration, back in 1993, a policy of borrow-and-spend looked extremely unwise: money at 5.5%/year in real interest was not cheap, and that number seemed likely to rise further with each year that the government failed to come up with a plan to stabilize the debt-to-annual-GDP ratio. Moreover, with Alan Greenspan promising to reduce the interest rates he controlled in order to keep unemployment at the NAIRU in spite of damping effects on demand exercised by fiscal contraction, it seemed to make a great deal of sense to say that federal-government fiscal policy needed to be based on "classical" principles. And, indeed, it is hard to read the strong high-investment recovery of the mid- and late-1990s--what Janet Yellen and Alan Blinder called The Fabulous Decade--as confirmation that those of us who made Clinton-administration fiscal policy knew what we were doing.

But do we know what we are doing now? Paul Krugman says: clearly not:

Paul Krugman: [Ideology and Investment(http://www.nytimes.com/2014/10/27/opi... "America used to be a country that built for the future....

...Public projects, from the Erie Canal to the Interstate Highway System.... Incentives to the private sector, like land grants to spur railroad construction.... Broad support for spending that would make us richer. But nowadays we simply won’t invest.... And don’t tell me[, David Brooks,] that the problem is ‘political dysfunction’ or some other weasel phrase that diffuses the blame. Our inability to invest doesn’t reflect something wrong with ‘Washington’; it reflects the destructive ideology that has taken over the Republican Party.... More than seven years have passed since the housing bubble burst, and ever since, America has been awash in savings--or more accurately, desired savings--with nowhere to go.... And the mismatch between desired saving and the willingness to invest has kept the economy depressed.....

There’s an obvious policy response to this situation: public investment. We have huge infrastructure needs, especially in water and transportation, and the federal government can borrow incredibly cheaply--in fact, interest rates on [ten-year] inflation-protected bonds have been negative much of the time (they’re currently just 0.4 percent). So borrowing to build roads, repair sewers and more seems like a no-brainer. But what has actually happened is the reverse. After briefly rising after the Obama stimulus went into effect, public construction spending has plunged. Why?... The federal government could easily have provided aid to the states.... But once the G.O.P. took control of the House, any chance of more money for infrastructure vanished.... You can get a sense of this ideology at work in some of the documents produced by House Republicans under the leadership of Paul Ryan, the chairman of the Budget Committee. For example, a 2011 manifesto titled ‘Spend Less, Owe Less, Grow the Economy’ called for sharp spending cuts even in the face of high unemployment, and dismissed as ‘Keynesian’ the notion that ‘decreasing government outlays for infrastructure lessens government investment.’ (I thought that was just arithmetic, but what do I know?) Or take a Wall Street Journal editorial from the same year titled ‘The Great Misallocators,’ asserting that any money the government spends diverts resources away from the private sector, which would always make better use of those resources. Never mind that the economic models underlying such assertions have failed dramatically in practice, that the people who say such things have been predicting runaway inflation and soaring interest rates year after year and keep being wrong; these aren’t the kind of people who reconsider their views in the light of evidence....

The result, as I said, is that America has turned its back on its own history. We need public investment; at a time of very low interest rates, we could easily afford it. But build we won’t.

By the early 2000s--in large part, I would argue, due to the success of the Clinton administration's fiscal policy in restoring the credibility of the U.S. federal government--it seemed reasonable to project that the U.S. government would be able to borrow for ten years at 3%/year in real terms, a more favorable rate than the Clinton administration was facing in the mid-1990s. However, in the early 2000s the Bush II administration's spending priorities were as misplaced as the Reagan-Bush I administrations: Tax cuts for the rich are very good at making the rich richer without doing anything to spur overall economic growth: it's not that the policy is trickle-down, it's that there is no trickle. Expensive pointless wars that further destabilize the Middle East were even more ill-advised than the Reagan administration's military build-up. And even less wise was increasing federal spending on health care while avoiding even attempting any of the proposed long-term strategies to try to bring America's health-care financing system's performance up so that we were no longer spending $2 on health to get the value other countries got for $1.

Now, of course, things look different. The government doesn't have to borrow at 8.5%/year or 5.5%/year or even 3.0%/year in real terms, and next to nobody in the markets expects the U.S. government to have to pay more than 2.0%/year in real terms to borrow for the foreseeable future. The fruit as to what the government could do that would be useful, productive, and growth-enhancing is not just low-hanging. It is lying on the ground.

And yet it is impossible to get the chattering class in Washington to seriously ask the two questions:

How valuable would be the things we would be using the money for?

How expensive would the money be to borrow?

and reach the natural, obvious, inescapable conclusion that right now what the U.S. needs is not a smaller but a larger national debt. Instead, all we hear is:

DEBT! DEFICIT!! AIYEEE!!

Why can't Washington do the math?

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Afternoon Must-Read: Fast FT: Lars Svensson: 1, Sadomonetarists 0

Fast FT: Lars Svensson: 1, Sadomonetarists: 0: "Lars Svensson quit Sweden's Riksbank in a huff last year...

...frustrated by the central bank's insistence on raising rates despite the deflationary dangers. His former employer has just tacitly admitted that the economist was right. The Riksbank earlier this morning cut its benchmark interest rate to an unprecedented zero per cent, and markedly moved out its forecast for when it will lift rates again until mid-2016, in an attempt to ease the deflationary forces gripping the Swedish economy. The Riksbank should arguably have listened more closely to its former deputy governor sooner...

Morning Must-Read: Richard Mayhew: Getting Dropped Hurts

Richard Mayhew: Getting Dropped Hurts: "Back in 2008, there was an excellent study on the cost of losing health insurance...

...and then regaining it for people with chronic conditions.... $240 per member per month for Medicaid members in the mid-2000s is a massive number.... I am speculating that a decent chunk of the cost growth slowdown and differential for Expansion states compared to non-Expansion states is a more streamlined set of care.... In 2013, a person who made a few dollars too many, or had been on a program for a month too long would be dropped from Legacy Medicaid, and previously manageable conditions could become unmanaged. In 2014 in expansion states, that person would be dropped from Legacy Medicaid and instantly re-enrolled into Federally funded Expansion Medicaid. The only difference they would see in most expansion states was a different ID card in the mail three weeks later...

Of All the Many Dorky Things About the Kansas Republican Party, the Dorkiest Is the Pretense that Brownback's Economic Strategy Worked: Live from Teh Roasterie

Luke Brinker: The Wall Street Journal’s shameless dishonesty: What its defense of Kansas’ tax cuts says about the right’s real agenda: "Eight days before Kansas Gov. Sam Brownback may lose re-election...

...thanks to the disastrous consequences of his deep tax cuts, the Wall Street Journal has published an apologia for Brownback.... You know you’re in for a real doozy when Allysia Finley, a member of the Journal’s editorial board and the piece’s author, begins by comparing Brownback’s tax cuts with the 19th-century struggle against slavery. “During the 1850s,” Finley writes “Kansas turned into a battleground for a proxy war between abolitionists and slavery supporters. Today, Kansas has become the flash point in another national debate, this one over government’s role in promoting growth.” Well then. Unlike Brownback, whose theory is that his policies will soon start working )any day now!) but the liberal media is determined to create the impression that they’ve already failed, Finley assures us that Kansas’ tax cuts are working right now...

She omits that Kansas collected $330 million less than expected in revenue for fiscal year 2014, which was $700 million below revenue for fiscal 2013... 10 percent short of expectations. But Finley simply asserts that any budgetary problems can safely be laid at the feet of moderate Republicans in the Kansas Senate.... Finley doesn’t see fit to mention... that state funding for public schools remains 15 percent below pre-Great Recession levels....

And what of the flourishing economy Brownback promised his tax cuts would create? “Since the tax cuts took effect in January 2013,” Finley writes, “private job growth in Kansas has surpassed growth in Nebraska and Iowa after trailing for the prior decade. Services (i.e., small businesses) account for 95% of the state’s growth in private jobs, compared with about 70% in Iowa and Nebraska.” Sounds pretty impressive--until you realize Kansas’ GDP growth of 1.9 percent in 2013 lagged seven neighboring or Great Plains states; the only state in the region to fare worse was Missouri....

.By any objective measure, then, Brownback’s tax cuts have been an utter failure. So what explains the disinformation campaign waged by Brownback’s supporters in the GOP and on the Wall Street Journal editorial board?...

Josh Barro: Kansas Faces Additional Revenue Shortfalls After Tax Cuts: "Kansas has missed its tax revenue targets again...

...and the state is in for new fiscal pain... big numbers in a state that spends about $6 billion annually from its general fund.... In June, state lawmakers debated whether the revenue shortfall was temporary. Steve Stotts, the director of taxation at the state’s department of revenue, attributed the shortfall mostly to a one-time event unrelated to Kansas’ tax cuts.... Mr. Stotts said he suspected the state’s revenue-estimating group would cut the state’s revenue projections shortly after the election, at its next scheduled meeting. ‘I can’t tell you how much,’ he said. I can make an educated guess, though: If personal income tax revenues continue to fall short by 10 percent, that will add $250 million to the state’s budget gap.... There could be even bigger problems to come, because Kansas’ income tax estimates for the next nine months are actually more optimistic than this summer’s were.... In 2012, Gov. Brownback called his state’s tax cuts a ‘real live experiment’ in how tax-cutting affects the budget and the economy. So far, the main result of the experiment seems to be that cutting taxes causes the government to lose revenue.

Of All the Many DorkyThings About the Kansas Republican Party, the Dorkiest Is the Pretense that Brownback's Economic Strategy Worked: Live from Teh Roasterie

Luke Brinker: The Wall Street Journal’s shameless dishonesty: What its defense of Kansas’ tax cuts says about the right’s real agenda: "Eight days before Kansas Gov. Sam Brownback may lose re-election...

...thanks to the disastrous consequences of his deep tax cuts, the Wall Street Journal has published an apologia for Brownback.... You know you’re in for a real doozy when Allysia Finley, a member of the Journal’s editorial board and the piece’s author, begins by comparing Brownback’s tax cuts with the 19th-century struggle against slavery. “During the 1850s,” Finley writes “Kansas turned into a battleground for a proxy war between abolitionists and slavery supporters. Today, Kansas has become the flash point in another national debate, this one over government’s role in promoting growth.” Well then. Unlike Brownback, whose theory is that his policies will soon start working )any day now!) but the liberal media is determined to create the impression that they’ve already failed, Finley assures us that Kansas’ tax cuts are working right now...

She omits that Kansas collected $330 million less than expected in revenue for fiscal year 2014, which was $700 million below revenue for fiscal 2013... 10 percent short of expectations. But Finley simply asserts that any budgetary problems can safely be laid at the feet of moderate Republicans in the Kansas Senate.... Finley doesn’t see fit to mention... that state funding for public schools remains 15 percent below pre-Great Recession levels....

And what of the flourishing economy Brownback promised his tax cuts would create? “Since the tax cuts took effect in January 2013,” Finley writes, “private job growth in Kansas has surpassed growth in Nebraska and Iowa after trailing for the prior decade. Services (i.e., small businesses) account for 95% of the state’s growth in private jobs, compared with about 70% in Iowa and Nebraska.” Sounds pretty impressive--until you realize Kansas’ GDP growth of 1.9 percent in 2013 lagged seven neighboring or Great Plains states; the only state in the region to fare worse was Missouri....

.By any objective measure, then, Brownback’s tax cuts have been an utter failure. So what explains the disinformation campaign waged by Brownback’s supporters in the GOP and on the Wall Street Journal editorial board?...

Josh Barro: Kansas Faces Additional Revenue Shortfalls After Tax Cuts: "Kansas has missed its tax revenue targets again...

...and the state is in for new fiscal pain... big numbers in a state that spends about $6 billion annually from its general fund.... In June, state lawmakers debated whether the revenue shortfall was temporary. Steve Stotts, the director of taxation at the state’s department of revenue, attributed the shortfall mostly to a one-time event unrelated to Kansas’ tax cuts.... Mr. Stotts said he suspected the state’s revenue-estimating group would cut the state’s revenue projections shortly after the election, at its next scheduled meeting. ‘I can’t tell you how much,’ he said. I can make an educated guess, though: If personal income tax revenues continue to fall short by 10 percent, that will add $250 million to the state’s budget gap.... There could be even bigger problems to come, because Kansas’ income tax estimates for the next nine months are actually more optimistic than this summer’s were.... In 2012, Gov. Brownback called his state’s tax cuts a ‘real live experiment’ in how tax-cutting affects the budget and the economy. So far, the main result of the experiment seems to be that cutting taxes causes the government to lose revenue.

Liveblogging the American Revolution: The Battle of White Plains: October 28, 1776

Wikipedia: Battle of White Plains:

Howe remained at Scarsdale until the morning of October 28, when his forces marched toward White Plains, with British troops on the right under General Henry Clinton, and primarily Hessian troops on the left under General von Heister. While Washington was inspecting the terrain to determine where it was best to station his troops, messengers alerted him that the British were advancing. Returning to his headquarters, he ordered the 2nd Connecticut Regiment under Joseph Spencer out to slow the British advance, and sent Haslet and the 1st Delaware Regiment, along with Alexander McDougall's brigade (Rudolphus Ritzema's 3rd New York Regiment, Charles Webb's 19th Continental Regiment, William Smallwood's 1st Maryland Regiment, and the 1st New York Regiment and 2nd New York Regiments) to reinforce Chatterton Hill.

Spencer's force crossed the Bronx River, set up behind a stone wall, and exchanged fire with the Hessians led by Colonel Johann Rall that were at the head of the British left column. Eventually forced to retreat when Clinton's column threatened their flank, these companies retreated across the Bronx River, while fire from the troops on Chatterton Hill covered their move. Rall's troops attempted to gain the hill, but were repelled by fire from Haslet's troops and the militia, and retreated to a nearby hilltop on the same side of the river. This concerted defense brought the entire British Army, which was maneuvering as if to attack the entire American line, to a stop.

While Howe and his command conferred, the Hessian artillery on the left opened fire on the hilltop position, where they succeeded in driving the militia into a panicked retreat. The arrival of McDougall and his brigade helped to rally them, and a defensive line was established, with the militia on the right and the Continentals arrayed along the top of the hill. Howe finally issued orders, and while most of his army waited, a detachment of British and Hessian troops was sent to take the hill. The British attack was organized with Hessian regiments leading the assault. Rall was to charge the American right, while a Hessian battalion under Colonel Carl von Donop (consisting of the Linsing, Mingerode, Lengereck, and Kochler grenadiers, and Donop's own chasseur regiment) was to attack the center. A British column under General Alexander Leslie (consisting of the 5th, 28th, 35th, and 49th Foot) was to attack the right. Donop's force either had difficulty crossing the river, or was reluctant to do so, and elements of the British force were the first to cross the river. Rall's charge scattered the militia on the American right, leaving the flank of the Maryland and New York regiments exposed as they poured musket fire onto the British attackers, which temporarily halted the British advance. The exposure of their flank caused them to begin a fighting retreat, which progressively forced the remainder of the American line, which had engaged with the other segments of the British force, to give way and retreat. Haslet's Delaware regiment, which anchored the American left, provided covering fire while the remaining troops retreated to the north, and were the last to leave the hill. The fighting was intense, and both sides suffered significant casualties before the Continentals made a disciplined retreat....

John Fortescue... 267 British and Hessians killed, wounded or missing at White Plains. Henry Dawson, on the other hand, gives Howe's loss as 47 killed, 182 wounded and 4 missing. The American loss is uncertain. Theodore Savas and J. David Dameron give a range of 150-500 killed, wounded and captured. Samuel Roads numbers the casualties of 47 killed and 70 wounded. Henry Dawson estimates 50 killed, 150 wounded and 17 missing for McDougall's and Spencer's commands but has no information on the losses in Haslet's regiment.

The two generals remained where they were for two days, while Howe reinforced the position on Chatterton Hill, and Washington organized his army for retreat into the hills. With the arrival of additional Hessian and Waldeck troops under Lord Percy on October 30, Howe planned to act against the Americans the following day. However, a heavy rain fell the whole next day, and when Howe was finally prepared to act, he awoke to find that Washington had again eluded his grasp. Washington withdrew his army into the hills to the north on the night of October 31, establishing a camp near North Castle. Howe chose not to follow, instead attempting without success to draw Washington out. On November 5, he turned his army south to finish evicting Continental Army troops from Manhattan, a task he accomplished with the November 16 Battle of Fort Washington."

Material Prosperity since 1980: Hoisted from the Archives from Two Years Ago

Median Material Prosperity since 1980: In the past couple of months I have gone pretty much every place I ever went between when I was 15 in 1975 and when I was 25 in 1985. Every place--every place--looks a lot better, richer, a lot busier now than it looked then. How can this be if it really is the case that media and living standards of stagnated since the early 1970s? They are not all 1% or even 10% places, not now and especially not then.

One answer is that between 1975 and 1985 I never went to Scranton or Detroit--but instead to places like Dupont Circle, Adams Morgan, Cambridge, Virginia Beach, greater Orlando, Park Slope, the Lower East Side, the Upper West Side, Jackson Hole, and other places some of which are top 1% places and the others of which are all urban edge Renaissance places benefiting mightily from increased congestion.

Another answer is that not just average income but density of economic activity matters--more dense places look more prosperous because there are more choices. But then shouldn't the number of choices be factored into our estimates of the median?

But the answer I prefer right now is that our assessment of the prosperity of a place depends on the median dollar spent there rather than on the well-being of the median person there. And practically everywhere the median dollar today is being spent by somebody much richer with much richer tastes than the median dollar some 32 years ago was...

Noted for Your Afternoon Procrastination for October 27, 2014

Over at Equitable Growth--The Equitablog

Very Rough: Exploding Wealth Inequality and Its Rent-Seeking Society Consequences: (Early) Monday Focus for October 27, 2014 - Washington Center for Equitable Growth
Afternoon Must-Read: Jon Cunliffe: Bankers Earn Too Much, Reducing Returns to Investors - Washington Center for Equitable Growth
Afternoon Must-Read: Carter Price: Why Should Policymakers Care About Economic Inequality? - Washington Center for Equitable Growth
Afternoon Must-Read: Nick Bunker: Piketty, Rognlie, Karabarbounis nad Neiman, and the Elasticity of Substitution - Washington Center for Equitable Growth
Morning Must-Read: Carter Price: Miscalculating the Wealth of the Rich Reveals Unintended Biases - Washington Center for Equitable Growth
Heather Boushey: Understanding economic inequality and growth at the middle of the income ladder - Washington Center for Equitable Growth

Nick Bunker: Boosting productivity by boosting capital incomes for workers - Washington Center for Equitable Growth

Plus:

Things to Read on the Afternoon of October 27, 204 - Washington Center for Equitable Growth

Must- and Shall-Reads:

Josh Zumbrun: Bad Stock-Market Timing Fueled Wealth Disparity
Rebecca Liao: China strives incoherently for the ‘socialist rule of law’
Nick Bunker: Piketty and the Elasticity of Substitution
Carter Price: Why should policymakers care about economic inequality?
Paul Hannon: BOE’s Cunliffe Says Bankers Earn Too Much, Reducing Returns to Investors
Emmanuel Saez and Gabriel Zucman: Exploding wealth inequality in the United States
Matt O'Brien: Why Europe is doomed
Is the Affordable Care Act Working?

And Over Here:

Over at Equitable Growth: Very Rough: Exploding Wealth Inequality and Its Rent-Seeking Society Consequences: (Early) Monday Focus for October 27, 2014 (Brad DeLong's Grasping Reality...)
Liveblogging World War II: October 27, 1944: Eleanor Roosevelt (Brad DeLong's Grasping Reality...)
Liveblogging the Cuban Missile Crisis: Telegram From the Embassy in the Soviet Union to the Department of State: Hoisted from the Non-Internet of 52 Years Ago (Brad DeLong's Grasping Reality...)
Monday Dianne Furchgott-Roth, MIchael Strain, and James Pethokoukis Inequality-of-Opportunity Smackdown (Brad DeLong's Grasping Reality...)
James O’Keefe Looks For Voter Fraud In Colorado, Finds Nothing. Again: Across the Wide Missouri (Brad DeLong's Grasping Reality...)
Could We Please Have Better New York Times Columnists?: Historical Lack-of-Literacy Edition (Brad DeLong's Grasping Reality...)

Carter Price: Miscalculating the Wealth of the Rich Reveals Unintended Biases: "In an ambitious effort... Philip Armour... Richard Burkhauser... and Jeff Larrimore... estimate... trends in inequality based on... Haig-Simons... income... consumption plus change in net wealth... [and] claim inequality has not been rising over time.... [Unfortunately] their methodological choices bias the results to downplay relative income growth at the top.... >The Haig-Simons measure introduces substantial volatility as well based on changes in the market valuation of assets.... Mark Zuckerberg... [was] one of the poorest people in the world in 2012 because his net worth fell by $4.2 billion.... Haig-Simons... factor[s] out volatility in realized capital [gains]... but... introduces... volatility in the valuation of capital holdings.... Inflation in housing prices during the 2000s... show[s] up as a rising Haig-Simons income... [but] much of this valuation was a bubble.... The authors... include near-cash benefits... a single national housing index... the Dow Jones Industrial Average... for all types of stock income... limitations on details of high-income households.... Each of these methodological choices will artificially bias their estimates toward a lower valuation of income growth at the top of the distribution..."

Nick Bunker: Piketty and the Elasticity of Substitution: "A particularly technical and effective critique of Piketty is from Matt Rognlie.... Loukas Karabarbounis and Brent Neiman... show that the gross labor share and the net labor share move in the same direction when the shift is caused by a technological shock... point out that the gross and net elasticities are on the same side of 1.... Rognlie’s point about these two elasticities being lower than 1 doesn’t hold up if capital is gaining due to a new technology that makes capital cheaper..."

Carter Price: Why should policymakers care about economic inequality?: "It was long assumed economic growth led to less economic inequality but also that any economic policy efforts to alleviate inequality would necessarily slow economic growth. These views, however, were formed in an era before there was sufficient data to truly test this view.... In an early survey... Roland Benabou at Princeton University in 1996 found that the vast majority of studies said high and rising inequality harmed economic growth.... Sarah Voitchovsky... find[s]... substantial disagreement about the relationship between inequality and growth.... Recent work by... Andrew Berg, Jonathan Ostry, and Charalombos Tsangaridis... Roy van der Weide... and Branko Milanovic of the City University of New York have robustly found a negative relationship between economic inequality for developed countries and within the United States.... Other studies find that a highly skewed distribution of income and wealth depresses consumption... leading to unsustainably excessive borrowing..."

Paul Hannon: BOE’s Cunliffe Says Bankers Earn Too Much, Reducing Returns to Investors: "Jon Cunliffe... noted that bankers continue to be paid very highly relative to the returns they generate for shareholders. ‘Another driver of low returns on assets and equity is the fact that banks’ pay bill has not adjusted to the smaller returns banks are now earning,’ he said. ‘Put simply, shareholders have gone from getting 60 cents for every dollar in pay for staff to getting 25 cents per dollar.... But, given lower levels of leverage, it is unlikely that we will see, or want to see again, the returns on equity that we saw before the crisis. In the new world, pay bills may well have further to adjust.’"

Emmanuel Saez and Gabriel Zucman: Exploding wealth inequality in the United States: "The share of total income earned by the top 1%... less than 10% in the late 1970s but now exceeds 20%.... A large portion of this increase is due to an upsurge in the labor incomes earned by senior company executives and successful entrepreneurs. But... did wealth inequality rise as well?... The answer is a definitive yes.... We use comprehensive data on capital income—such as dividends, interest, rents, and business profits—that is reported on individual income tax returns since 1913. We then capitalize this income so that it matches the amount of wealth recorded in the Federal Reserve’s Flow of Funds.... In this way we obtain annual estimates of U.S. wealth inequality stretching back a century. Wealth inequality, it turns out, has followed a spectacular U-shape evolution over the past 100 years.... How can we explain the growing disparity in American wealth? The answer is that the combination of higher income inequality alongside a growing disparity in the ability to save for most Americans is fueling the explosion in wealth inequality. For the bottom 90 percent of families, real wage gains (after factoring in inflation) were very limited over the past three decades, but for their counterparts in the top 1 percent real wages grew fast. In addition, the saving rate of middle class and lower class families collapsed over the same period while it remained substantial at the top.... If income inequality stays high and if the saving rate of the bottom 90 percent of families remains low then wealth disparity will keep increasing. Ten or twenty years from now, all the gains in wealth democratization achieved during the New Deal and the post-war decades could be lost.... There are a number of specific policy reforms needed to rebuild middle class wealth.... Prudent financial regulation to rein in predatory lending, incentives to help people save... steps to boost the wages of the bottom 90 percent of workers are needed.... One final reform also needs to be on the policymaking agenda: the collection of better data on wealth...

Matt O'Brien: Why Europe is doomed: "'Merkel felt betrayed by Draghi's speech.... Her entourage is also deeply skeptical about Draghi's plan to buy up asset-backed securities (ABS) and covered bonds in the hope of encouraging commercial banks to lend... worry that if this scheme doesn't work, the ECB president will be tempted to launch full-blown government bond buying, or quantitative easing. This is a taboo in Germany and a step Merkel's allies fear would play into the hands of the country's new anti-euro party, the Alternative for Germany (AfD).'... Euro-zone inflation has fallen to just 0.3 percent, more than low enough to hurt their not-really-recovering economy.... But instead of doing anything about it, the ECB has just told people to pay no attention to the disinflation behind the curtain.... This façade lasted until August. That's when ECB chief Mario Draghi finally admitted, in some off-script remarks, that inflation had fallen too low, and Europe's governments had to help out by doing less austerity. Cue the German freakout. Now here's what you need to remember about the ECB. It hasn't been willing to do anything without the German government's buy-in.... Once you understand that, you understand why Europe has floundered from one existential crisis to the next. There will be a problem, the ECB will dawdle, then it will try to persuade Angela Merkel to get on board, they'll debate whether it should do too little too late or too late too little, and then, finally, the ECB will do just enough to keep the euro zone from falling apart. But now even the bare minimum is too much for Merkel..."

Is the Affordable Care Act Working?: "After a year fully in place, the Affordable Care Act has largely succeeded in delivering on President Obama’s main promises"

Should Be Aware of:

Tony Barber: A new Warsaw museum devoted to Jewish-Polish history
Roman Olearchyk and Neil Buckley: Polls Signal Ukraine’s Westward Shift
Zogby Analytics: ‘Mitch Is Just A Most Unpleasant Man’

 

Stephen Mandis: What It Will Take to Change the Culture of Wall Street: "As I reflected upon my career at Goldman Sachs, though, what stood out was the importance of its organizational structure. That’s something sociologists pay a lot of attention to, while economists generally don’t.... I document... how Goldman drifted from a focus on ethical standards of behavior to legal ones — from what one ‘should’ do to what one ‘can’ do.... The importance of focusing on organizational behavior... culture had more to do with the financial crisis than leverage ratios did.... To achieve sustained success and avoid firm-endangering risks, a firm like Goldman has to cultivate financial interdependence among its top employees..." | Don't Blame the Apple and Exonerate the Tree | Culture, Not Leverage, Made Wall Street Riskier

Lance Taylor et al.: Structuralist Response to Piketty's Capital in the Twenty-First Century: "New School Economist Lance Taylor released a symposium of literature on Thomas Piketty’s Capital in the Twenty-First Century in conjunction with the INET-sponsored research project on Economic Sustainability, Distribution and Stability.... Lance Taylor: Thomas Piketty’s Capital in the Twenty-First Century: Introduction to a Structuralist Symposium. Prabhat Patnaik: Capitalism, Inequality and Globalization: Thomas Piketty’s Capital in the Twenty-First Century. Nelson Barbosa-Filho: Elasticity of substitution and social conflict: a structuralist note on Piketty’s Capital in the 21st Century. Gregor Semieniuk: Piketty’s Elasticity of Substitution: A Critique. Lance Taylor: The Triumph of the Rentier? Thomas Piketty vs. Luigi Pasinetti and John Maynard Keynes."

Nick Bunker: A Deeper Understanding of Secular Stagnation: "According to Eggertsson and Mehrotra... policymakers can move an economy out of this nasty equilibrium... monetary policy can help boost the economy only if the central bank credibly commits to a higher inflation target. This result is interesting given Summers’s claim that monetary policy may not be helpful in just such a situation. In this way, the model supports a critique of Summers’s original formulation of secular stagnation best articulated by the Economist’s Ryan Avent.... Backing up Summers... fiscal policy is helpful as well. By increasing the amount of public debt, fiscal policy increases the natural rate of interest..."

Liveblogging World War II: October 27, 1944: Eleanor Roosevelt

Eleanor Roosevelt: My Day: October 27, 1944:

On Tuesday evening I attended the rally at the Hotel Willard sponsored by the District of Columbia Democratic Central Committee and the Servicemen's Wives to Re-elect Roosevelt. An original song, dedicated to the President, was sung, and I received an armful of red roses which was one of the most beautiful I have seen in a long time.

This morning, bright and early, two gentlemen came to breakfast with me. It is a wonderful thing to talk to people who have courage about the future. So many people approach the problem of jobs for all with a defeatist attitude. So when you find yourself with two people whose feeling about the economic problems of the future is the same as the country as a whole has felt about winning the war, it gives you a tremendous sense of confidence.

The people of this country accomplished the unbelievable in production during the war. Many of them would have considered it impossible if anyone had told them that they had to provide an army such as we now have in the field; to build as big a navy and merchant marine as they now have built; to produce the number of planes and the amount of war materials which they have now produced. It is therefore not surprising to find that some of our leaders, at the inception of these plans, thought them fantastic.

The same kind of courage and vision will carry us through to full employment in the postwar period, and to a really better life, one hopes, for all the world. But it does require imagination and confidence in ourselves. Whenever I meet people with those two attributes, it gives me a feeling of real inspiration, and it was with this spirit that I started my day.

Another morning visitor was a woman from Liberia, Mrs. Sarah Simpson George, who is here studying kindergartens. Following her was a gentleman who thought he had a plan to help home owners in the future.

I took the noon train to New York on Wednesday, and in the evening went to Public School 194. A new program is being inaugurated there. A community worker is being employed, and the school is planning to be a more useful part of the community as a whole. The evening was extremely instructive to me, and though I did not know much about the details of their plans before, I shall now watch the developments with keen interest.

Today I shall visit the homemaking show at Gimbel's, which is sponsored by the Civilian Defense Volunteer Office, and shall tell you more about it tomorrow.

James O’Keefe Looks For Voter Fraud In Colorado, Finds Nothing. Again: Across the Wide Missouri

Wonkette tracks the ravings of James O'Keefe so the rest of us do not have to:

Beth Ethier: James O’Keefe Looks For Voter Fraud In Colorado, Finds Nothing. Again: "Ever since we heard the news that James O’Keefe had launched a voter fraud scavenger hunt in Colorado, we’ve been eagerly waiting...

...as we’re sure you have, Wonketteers, for his latest video to drop. Now that we’ve had a chance to see the highlight reel of O’Keefe’s Rocky Mountain Mustache Caper,  purporting to show Democratic Sen. Mark Udall’s ‘advocates’ standing by while an army of fraudulent voters gear up to steal the election, we have to say we’re a little disappointed. We are sure our dear readers will be shocked to learn that the actual product of O’Keefe’s investigation, despite being edited to O’Keefe’s maximum advantage, lacks any evidence of voter fraud and instead appears to show O’Keefe talking about all the crimes he can’t wait to commit, along with a couple of specific instances of stupidity by people who have no power over the electoral process and who consistently show an alarming lack of motivation to engage in fraud themselves. Before heading into the wilds of Boulder, O’Keefe sits for a Very Serious Interview with Colorado Secretary of State Scott Gessler, a frustrated voter suppressionist who worried at a recent voter suppression luncheon hosted by the Heritage Foundation.... Having failed in their attempts to get staff at Colorado Democratic field offices and campaign events to endorse plans to Fraud The Vote, O’Keefe’s crew apparently started moving down the ladder of political relevance until arriving at the office of Work for Progress, a hiring firm that fills low-level positions for environmental campaigns....

[O'Keefe] says Hicks is ‘approving my proposition to falsify ballots.’... O’Keefe doesn’t show that part on video. And no, he won’t release the raw unedited footage because....

Project Veritas Action does not release raw or unedited tapes or reporters’ notes of investigations....

Rep. Salazar’s office sent us this message expressing his gratitude to James O’Keefe for revealing the un-American fraud-enabler running his campaign:

Right wing operatives who seemed hell bent on committing voter fraud tried to rope my campaign manager Nicole into their scheme, and failed. Nicole did nothing wrong and simply referred them to the Adams County Clerk and Recorder’s office so they could have their questions answered. I believe this stunt actually proves that our new elections law is airtight, as they never once showed anyone actually committing voter fraud in any way, shape, or form. In fact, the only thing that this video showed was Mr. O’Keefe’s multiple attempts to commit voter fraud himself, and I hope he’s held accountable for this misguided and ridiculous stunt.

We’re not sure that James actually committed any crimes here (though that mustache is probably a misdemeanor offense in some jurisdictions), but he and his friends are standing closer to illegality than anyone else who appears in this video...

And we do remember what the California Attorney General says:

Wikipedia: [James O'Keefe): "The California Attorney General's Office granted O’Keefe and Giles limited immunity from prosecution...

...The AG's Report was released on April 1, 2010, concluding that the videos from ACORN offices in Los Angeles, San Diego, and San Bernardino had been 'severely edited'... there was no evidence of criminal conduct on the part of ACORN employees nor any evidence that any employee intended to aid or abet criminal conduct. It found that three employees had tried to deflect the couple's plans, told them ACORN could not offer them help on the grounds they wanted, and otherwise dealt with them appropriately. Such context was not reflected in O'Keefe's edited tapes.... It found no evidence of intent by the employees to aid the couple....

The AG's report confirmed that ACORN employee Juan Carlos Vera, shown in O'Keefe's video as apparently aiding a human smuggling proposal, had immediately reported his encounter with the couple to a Mexican police detective at the time to thwart their plan.... On March 5, 2013, O'Keefe agreed to pay Juan Carlos Vera $100,000... [and] 'regrets any pain suffered by Mr. Vera or his family.'

Maybe some good will come of this: let's hope there are some more paydays from O'Keefe to the stars of his videos in our future!