The conversation shifts toward wages

If I may indulge myself in a quick note at a busy time: today's lead NYT editorial marks a kind of watershed to me.  Aptly titled Picking Up the Tab for Low Wages, it begins by noting the divergence between productivity gains and wage gains since the 1970s and then alleges a primary cause:

These dynamics are not inevitable. Low-wage employers, in particular, pay low wages because they can and the main reason they can is that Congress has failed, over decades, to adequately update the minimum wage and other labor standards, including rules for overtime pay, employee benefits and union organizing.

Obama soft-focuses our domestic ills

I usually find Obama interviews, especially long ones, reassuring. His understanding of issues is nuanced and multi-tiered. But his responses to Ezra Klein's questions about domestic issues and trends struck me as disappointingly unfocused, or off-focus, on several fronts. For example:

1. Asked about the causes of growing inequality, he back-loaded labor law:

Now, there are a whole bunch of reasons for that [stagnant middle class wages]. Some of it has to do with technology and entire job sectors being eliminated — travel agents, bank tellers, a lot of middle management — because of efficiencies with the internet and a paperless office. A lot of it has to do with globalization and the rest of the world catching up. Post-World War II, we just had some enormous structural advantages because our competitors had been devastated by war, and we had also made investments that put us ahead of the curve, whether in education or infrastructure or research and development.

Reagan Revolution rollback

Here's how Matt O'Brien, the Washington Post/Wonkblog economics reporter, characterizes Obama's new tax proposals:

The state of the union is pretty good, actually, but President Obama has an idea to make it better: taxing Wall Street and the super-rich to make middle-class work even more worthwhile. It's Piketty with an American accent.

Okay, that's a little bit of an exaggeration, but not a huge one. Obama's State of the Union, you see, will call for $320 billion of new taxes on rentiers, their heirs, and the big banks to pay for $175 billion of tax credits that will reward work. In other words, it's fighting a two-front war against a Piketty-style oligarchy where today's hedge funders become tomorrow's trust funders. First, it's trying to slow the seemingly endless accumulation of wealth among the top 1, and really the top 0.1, no actually the top 0.001, percent by raising capital gains taxes on them while they're living and raising them on their heirs when they're dead. And second, it's trying to help the middle help itself by subsidizing work, child care, and education.

Stepping back, it's amazing the extent to which Thomas Piketty's tome Capital in the 21st Century, published in the U.S. in January 2014, has focused the U.S. policy debate on income inequality. Some economists have been talking about rising inequality since the 1980s, but Piketty and his colleague Emmanuel Saez have more recently put the spotlight on the very top -- the top 1%, .1% and .01% (they first published major findings pointing that way in 2003, but post-crisis updates have been making news in recent years). The book put the trends on the front pages. Now Democrats, after a rather disastrous pause to protect red-state senators in the 2014 election, are putting inequality front and center in their policy proposals.

Tax code progressivity isn't everything. But the top line matters

"Don't soak the rich," Edward D. Kleinbard admonishes U.S. policymakers in today's Times. Countries with less progressive tax systems than the U.S., which tax everyone more and spend more on social services and other public goods, do a better job of reducing inequality (and fostering citizens' welfare) than the U.S. does. Lower income citizens get disproportionately more value from government spending, and an adequate tax base must be broad-based.

I take the point -- made with equal force two days ago by Vox's Cathie Jo Martin and Alexander Hertel-Fernandez [update: Mike Konczal and Matt Bruenig both demonstrate the alleged US progressivity is an illusion -- see below]. But there's a counterpoint. The U.S. may have a more progressive tax system and skimpier social welfare than the wealthy countries of Europe -- that's a longstanding reality. But all these countries have moved in the same direction over the past thirty years, and all have suffered widening income inequality. Here's Thomas Piketty's explanation:

Is Obama offering "new ways of understanding" the economy?

Political scientist Julia Azari, who has written a book about presidential rhetoric, suggests that Obama's rhetoric has so far failed to be transformative:

A more nuanced critique of Obama’s rhetoric might suggest that, especially early on, his rhetorical choices fit very neatly into existing terms of debate. His speeches have offered very little in terms of new ways of understanding the central policy issues of his presidency – healthcare, the minimum wage, immigration, climate change and the environment. I’m not arguing that with better framing, Obama would have been more successful on these issues. But the old frames have allowed opponents to define the discussion, even after policies are signed into law. Furthermore, debate about issues like immigration and minimum wage continue to invoke the same tradeoffs and considerations that they have in the past. Effective rhetoric would cast familiar issues – particularly ones like immigration, which tend to cut across party lines – in terms of values and considerations that are both novel and resonant. That might not be enough for policy change now, but it might allow for it later, under the right conditions. This is admittedly a high bar for presidential rhetoric, even for someone with Obama's facility with certain kinds of public speeches.

This may be true at the single-policy level. It is true at the sound bite level. Obama's not good at war cries, or slogans, or, less cynically, single phrases that sink into the national consciousness.

Piketty: U.S. sold its middle class birthright for a mess of Reaganite pottage

The main thesis of Thomas Piketty's Capital in the Twenty-First Century is that the accumulation of wealth in the hands of a few is subject to a kind of gravitational pull. That's what the long-term data tells Piketty. But there's a second core thesis: that gravitational pull can be countered by social policy. Markets, he asserts, are a social construct: prices and wages do not magically align themselves with intrinsic worth.

In practice, the invisible hand does not exist, any more than “pure and perfect” competition does, and the market is always embodied in specific institutions such as corporate hierarchies and compensation committees (p. 332).

In Chapter 8, Piketty traces "the explosion of inequality in the U.S. after 1980." In Chapter 9, he homes in on the explosion in compensation of top executives in the U.S. -- mirrored to a somewhat lesser extent, throughout the Anglosphere, and to a lesser but still pronounced degree, through Continental Europe, Japan, and emerging economies:

The central fact is that in all the wealthy countries, including continental Europe and Japan, the top thousandth enjoyed spectacular increases in purchasing power in 1990– 2010, while the average person’s purchasing power stagnated (p. 320).

Political polarization correlates with rising inequality

Thomas E. Mann, arguing that U.S. political dysfunction is more extreme than political scientists are willing to acknowledge, asserts (and demonstrates) that paralyzing party polarization is asymmetric:

That mismatch between parties and governing institutions is exacerbated by the fact that the polarization is asymmetric. Republicans have become a radical insurgency—ideologically extreme, contemptuous of the inherited policy regime, scornful of compromise, unpersuaded by conventional understanding of facts, evidence, and science; and dismissive of the legitimacy of its political opposition. The evidence of this asymmetry is overwhelming.

The time frame for this accelerating dysfunction is approxmately 1980 - present:

And Norm Ornstein and I in It’s Even Worse Than It Looks document how the asymmetry developed from Newt Gingrich in the 1980s to the present. Asymmetric polarization has found its way to the public: Republican Party voters are more skewed to their ideological pole than Democratic Party voters are to theirs.

Serendipity: continuing my slow plow through Thomas Piketty's Capital in the Twenty-First Century this morning,  I came across the foundational fact base:

The moral (and economic and social) equivalent of war, revisited

William James' prescient 1910 essay The Moral Equivalent of War was written in part as a rebuttal to pre-World War I theorizing about the role of war in human society that to post-world-war eyes look rather shocking:

Other militarists are more complex and more moral in their considerations. The Philosophie des Krieges, by S. R. Steinmetz is good example. War, according to this author, is an ordeal instituted by God, who weighs the nations in its balance. It is the essential form of the State, and the only function in which peoples can employ all their powers at once and convergently. No victory is possible save as the resultant of a totality of virtues, no defeat for which some vice or weakness is not responsible. Fidelity, cohesiveness, tenacity, heroism, conscience, education, inventiveness, economy, wealth, physical health and vigor — there isn't a moral or intellectual point of superiority that doesn't tell, when God holds his assizes and hurls the peoples upon one another.

James did not dismiss such views out of hand. Asserting, "The war-party is assuredly right in affirming and reaffirming that the martial virtues, although originally gain by the race through war, are absolute and permanent human goods," he wondered how humanity might martial those virtues in less destructive ways. And as I noted in The Moral Equivalent of Warmongering, Steinmetz's sentiments maintain a persistent half-life in in common attitudes, expressed via boomer-bashing and other (eternal) moralizing that excoriates those who have concerned themselves mainly with peacetime pursuits.

Today it's not acceptable to suggest that war is a consummation devoutly to be wished. But Ian Morris, in War! What is it Good For?* has updated the argument that war has so far been a major spur of human development -- not only technological, a reality impossible to ignore -- but social and political as well.  In effect, it seems Morris argues (I haven't read the book yet -- excuse the blogger's license) that war has taught us peace. From David Crane's review in The Spectator:

Did communism keep the west in the pink?

Thomas Edsall relays* the core ideas of a book by French economist Thomas Piketty, Capital in the 21st Century, that is causing a stir among economists. According to Picketty, the broad sharing of wealth and shrinking of economic equality in the developed world in the middle of the twentieth century was an historical anomaly:

There are a number of key arguments in Piketty's book. One is that the six-decade period of growing equality in western nations - starting roughly with the onset of World War I and extending into the early 1970s - was unique and highly unlikely to be repeated. That period, Piketty suggests, represented an exception to the more deeply rooted pattern of growing inequality.

According to Piketty, those halcyon six decades were the result of two world  wars and the Great Depression. The owners of capital - those at the top of the pyramid of wealth and income - absorbed a series of devastating blows. These included the loss of credibility and authority as markets crashed;physical destruction of capital throughout Europe in both World War I and World War II; the raising of tax rates, especially on high incomes, to finance the wars; high rates of inflation that eroded the assets of creditors; the nationalization of major industries in both England and France; and the appropriation of industries and property in post-colonial countries.