Friday, April 07, 2006

Moments of Equilibrium, Weeks of Touring

by Ken Houghton

As I mentioned earlier, I want to look at the post from Tom that I trampled last night, and most especially at the graphic he references from Mark Thoma.

Don't get me wrong; I'm as fond of raw data as the next person (assuming equal computing power), but I started in Financial Services about twenty years ago, working in Derivatives, so I'm much more inclined to look at changes than I am to look at absolutes.

All of this comes straight out of physics: speed, velocity, acceleration map rather well to yield, duration, and convexity. This is not coincident. And moments of equilibrium signal more than the speedometer ever will, except in the event of a ticket.

So I took the same data Mark graphed, from page 11 of Kennickell's paper, and treated 1989 as the baseline. The end, as it were, of the Seven Fat Years.

This seems much easier to understand. If we use 1989 as a base, only the top 1% of the population shows an increase in percentage of holdings. The 95-99% range is breaking even over the same time.

Everyone else, not to put too fine a point on it, is falling behind. The bottom half has declined steadily since 1995, while the 50-90% range has made a slight recovery from 2001, but still does not approach its 1998 share of the pie.

Yes, it's a larger pie. And, yes, some people have moved from the margin of one group to another. But by and large, 95% of the population has seen wealth transfer to the top 1%.

UPDATE 14 April: Mark Thoma publicizes that the benefit of the 2001 and 2003 tax cuts goes to only the top 1% as well.

And once again we demonstrate that economics is simply an abstract expression of upper class power.
Anon, to some extent you may be shooting the messenger.

It would be more accurate to say that economics that proceeds without consideration of distributional consequences of policies, and/or which regards "free" market outcomes as inherently desirable, is (possibly unwittingly) an expression of upper class power. But that's a subset of all economics.
I should add, it doesn't always seem like a large subset...
Oops, the emphasis should have been on "always," not "large."
Of course I don't blame you personally, messenger. But I do think that the discipline's devotion to abstract, impersonal forces -- infinitely more sophisticated and complex renderings of the invisible hand, but ultimately not so different -- serve as a mask for more fundamental forces struggling for power. The remarkable reversal of fortunes for the American working and middle classes over the last 30 years was in many respects legitimated and indeed planned in the supposedly objective realm of economics. Where would Bush and the corporate right be without Greenspan and the well-funded think tanks that stretch well into academia? Sure, there's a fairly large group of academic economists who know better, but how can your professional abstractions compare to the weightier politics of domination?
Anon, the short answer is that the economists who know better need to get together with suitable policymakers. Easier said than done, of course.

Part of the reason why I'm disappointed with the Center for American Progress is that they haven't learned the lesson of the right-wing think tanks, and instead behave as if they're developing incremental (if useful) policy improvements to slip through in a divided government.
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?