the great wealth exchange

Princeton economist and “New York Times” op-ed columnist Paul Krugman has a piece in the new “Rolling Stone” on the growing income inequality between the rich and the poor in America. If you have a half-hour or so, check it out. Or, if you only have a few minutes, watch this little exchange between Krugman and one of the ubiquitous Fox News assholes (who had the nerve to accuse him of “lying”).

Here are a few clips from the “Rolling Stone” piece:

…Not only can few Americans hope to join the ranks of the rich, no matter how well educated or hardworking they may be — their opportunities to do so are actually shrinking. As best we can tell, pretax incomes are now as unequally distributed as they were in the 1920s — wiping out virtually all of the gains made by the middle class during the Great Compression…

Why isn’t Wal-Mart unionized? The answer is simple and brutal: Business interests went on the offensive against unions. And we’re not talking about gentle persuasion; we’re talking about hardball tactics. During the late 1970s and early 1980s, at least one in every twenty workers who voted for a union was illegally fired; some estimates put the number as high as one in eight. And once Ronald Reagan took office, the anti-union campaign was aided and abetted by political support at the highest levels….

Finally, there’s the government’s most direct method of affecting incomes: taxes. In this arena, Bush has made sure that the rich pay lower taxes than they have in decades. According to the latest estimates, once the Bush tax cuts have taken full effect, more than a third of the cash will go to people making more than $500,000 a year — a mere 0.8 percent of the population.
It’s easy to get confused about the Bush tax cuts. For one thing, they are designed to confuse. The core of the Bush policy involves cutting taxes on high incomes, especially on the income wealthy Americans receive from capital gains and dividends. You might say that the Bush administration favors people who live off their wealth over people who have a job. But there are some middle-class “sweeteners” thrown in, so the administration can point to a few ordinary American families who have received significant tax cuts…

In reality, only a few middle-class families received a significant tax cut under Bush. But every wealthy American — especially those who live off of stock earnings or their inheritance — got a big tax cut. To picture who gained the most, imagine the son of a very wealthy man, who expects to inherit $50 million in stock and live off the dividends. Before the Bush tax cuts, our lucky heir-to-be would have paid about $27 million in estate taxes and contributed 39.6 percent of his dividend income in taxes. Once Bush’s cuts go into effect, he could inherit the whole estate tax-free and pay a tax rate of only fifteen percent on his stock earnings. Truly, this is a very good time to be one of the have mores…

Some day, when people wake up to this shit (and all it would take is a week without television), things are going to get really, really ugly in this country.

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    Posted December 8, 2006 at 9:06 am | Permalink

    I believe part of the problem is that all those people honestly believe that they’re going to be rich one day and they want to make sure they’re protected. And then there’s the problem that they don’t read articles about economics, they’d rather do a google search on Britney Spears (why anybody has to go searching for news on her is beyond me as it’s freaking everywhere).

  2. egpenet
    Posted December 8, 2006 at 5:09 pm | Permalink

    The “ugly” days are upon us …

    The “pros” are invading our homes willy nilly …
    and some residents are about to panic.

    Freed is in retreat, forecasting no market for new housing in Ypsilanti for the foreseeable future …

    The City ( has no plans … no new ideas … it’s “stay the course” …

    The County is “one the verge” of listening to our wants …

    The EMU regents have “thinned” their ranks of the more useless people …

    So, there’s hope. Let’s not give up or give in to any more of these political power grabs among our mistakenly elected officials. Let’s do for ourselves what needs to be done in town … to make our neighborhoods safe … to attract and support and retain the businesses we want in town … and to grow local jobs that will help our economy start to grow once again. We have to do the work. City/County can’t get it done, haven’t gotten it done.

    Start with your neighborhood associations and get to work, people.

  3. leighton
    Posted December 8, 2006 at 6:12 pm | Permalink

    ^…Um, OK.

    Anyway, …
    This is I’m anti-gun control. Because, with more guns floating around, it’ll be more interesting when the armed-and-duped/ working poor realize they’ve been shafted by the GOP (who were just pandering to their fear of gays kissing while stealing their money).

  4. egpenet
    Posted December 8, 2006 at 6:43 pm | Permalink

    Lock and load … leighton.

  5. paulg
    Posted December 9, 2006 at 3:53 am | Permalink

    I’d like to point out that capital gains and dividends are available to everyone, not just the rich. Anyone can get an account at one of the online brokerages (etrade, ameritrade, etc) and buy and sell stock. Competition has reduced the brokerages’ commission per transaction to about $10, with no minimum purchase amount- so you can get started for almost nothing.

    Capital gains and dividends are nothing esoteric. Here’s some finance-101 stuff:

    A capital gain is your profit when you sell a stock (or other asset) for more than you bought it for. The capital gain tax is the tax on this profit.

    A dividend is a quarterly payment from a company to its stockholders (owners). It’s a return of profits to the owners. Anyone (not just the rich) who owns the company’s stock gets a cash dividend proportional to the number of shares he owns. The dividend tax is the tax on this income.

    The “Once Bush’s cuts go into effect” portion of the interview is fishy… the 15% cap on dividend and capital gains tax rates has been in effect for a few years. How old is this interview? :)

    A few more points… the 15% cap benefits you if your income is more than about $30K a year. I wouldn’t call $30K a year rich. And if your income puts you in the 15% tax bracket or below, the capital gains tax rate falls to 0%- that’s free money, untaxed profits. To me, this (old news) tax cut seems like a good deal for everyone, except maybe the government.

    Not that I credit GWB for any of this. My interpretation of Bush is that he’s a nonentity, a talking head- all of his policy comes from advisors. Some of them know their stuff, others don’t…

  6. egpenet
    Posted December 9, 2006 at 10:27 am | Permalink

    Dear paulg:

    The point AND the fact of the matter is that most Americans (60%+) cannot afford health insurance much less have money invested to be grateful to GWB for a capital gains tax reduction!

    Our extra cash is going to BP just to get to work, to DTE just to keep the thermostat at 59, to property taxes and, perhaps, city income taxes or increased rent. And don’t even talk about what extra cash retirees have to invest in order to enjoy a tax break … not when they are having to face insane drug plan choices and donut holes … that is, IF they can afford health insurance and/or one of the confusing new drug care plans.

    That’s all thanks to the Republicans. And now … just wait to see what the budget will balloon to when the Democrats begin appealling to our heartstrings!

    The point, paulg, is that the vast majority of Americans need to be prepared to settle into a much lower standard of living for the future … as we pay and pay for the benfits we need … while the top 5% make millions.

    If you’re one of us, paulg, lock and load. If you’re in that 5%, invest some money in kevlar and add a few steel plates to the underside of your BMW … just in case.

  7. mark
    Posted December 10, 2006 at 2:00 am | Permalink

    People are wealthy in large part, Paul, because of the infrastructure put in place by this government of ours. I doubt very seriously whether you, for instance, would have to worry about dividends, capital gains and such, had there not been an internet… My point, and Bill Gates Sr does a much better job of articulating it than I do, is that you did not create your wealth in a vacuum. Every day, you leverage U.S. infrastructure. The people you hire are public school grads. The roads you ship over are maintained by the government. The list is endless.

    And you can disagree with Krugman about the details, but the fact is that gap between rich and poor is growing exponentially in this country.

    I need to sleep now. It’s 2:00 AM.

  8. paulg
    Posted December 16, 2006 at 4:45 am | Permalink

    Glad you brought up health care, egpenet. It’s one of my ranting points. The situation is a disaster- health care cost increases have been far outstripping inflation for decades (quite independent of the administration in office). I have no idea what the cause is. And more and more I wonder what we’re getting for our money.

    The decades of increasing cost haven’t been accompanied by any medical breakthroughs. Probably the last great one was the eradication of smallpox, and before that the discovery of antibiotics. We’ve spent billions researching cancer and still don’t understand it; we use trial and error (and serendipity) to develop drugs rather than ENGINEERING them to achieve a desired effect; and we’ve never been able to cure ANY viral disease. I don’t know what the problem is. It just seems medicine has been severely lagging the other sciences in both understanding and bang for the buck. Yet costs keep increasing…

    Well, enough of that. All the more reason you need to grow your money, just to keep up. Don’t count on the government. It can’t increase revenue fast enough to keep up, and it’s incompetent to put its revenue to good use anyway.

    It’s better to have more control over your own money. The stock market, with its 8-10% yearly gain over the long term, is a good investment for anybody (as I was saying before, the entry costs are minimal now). I know people who won’t invest in the stock market because it’s too “risky”, but continue to rack up backbreaking credit card debt. They don’t like “unknowns”, apparently preferring a nice, steady 10-20% yearly loss from credit interest…

    Sorry for the ramble. It’s late…

  9. schutzman
    Posted December 16, 2006 at 2:05 pm | Permalink


    I would quite happily call someone making $30,000 per year ‘rich’, and I believe most people on earth would agree with me completely.

    Please explain to me, next, how it’s stupid for me to rent when I could just own my own house.

    And also, where I can purchase a nice pair of bootstraps with which to pull myself up by.

  10. mark
    Posted December 16, 2006 at 2:40 pm | Permalink

    You just lack the attitude of a winner, Mr. Schutzman.

    This reminds me of some great advice that Tom Monaghan once gave about being poor. I’ll look for it later. Essentially he said that you should enjoy the simplicity of it, etc. I remember him saying how great you could eat on just pennies a day. It’s wonderful stuff.

    As for the Republicans, they like to talk of pulling ones self up by the bootstraps, but rarely have they done so themselves. These spoiled sons fo privledge, do, however, seem quite often to help pull women down by their bra straps.

  11. egpenet
    Posted December 16, 2006 at 2:46 pm | Permalink

    They don’t make boot straps anymore, paulg.

    Not even Value Village has them for discount.

    Cost basis is the factor of whether to rent or buy. (This does NOT apply to vehicle leasing versus buying … leasing is like credit card debt … just keep up your payments … and at the very end … you own nothing!)

    Investing is very difficult without knowledge, expert tools and luck. Many, many retirement plans were wiped out (or cut more than 70%) by the tech stock bust. No easy answers … stocks vs. binds vs. commodities vs. annuities. For almost every American, the key these days is simply to reduce debt to the absolute minimum (aside from mortgage debt … which should be kept below 50% of appraised value.) Do all of that and you STILL could get killed in the markets.

    What bootstrap do I yank if I cannot afford medical insurance, or self-employment taxes or just to pay bills on time? Hmmm?

    Now, if you happen to be a poor white or black female in America … or a Native American (even on a sovreign reservation) … you are now entitled to LESS affirmative action, LESS help (welfare, food stamps, job training, medical care) unless you have babies. (Are we encouraging unwanted babies in America so the parents can get some cash? Yes.)

    And, if you are a poor white or (especially) black young male in America … your only alternative is to call your Army recruiter. Either way, on the streets in Detroit or Baghdad, you’ll be dead, wish you were dead, or in prison. (Do we encourage family formation in poor, especially poor black communities and foster moms and dads living together? NO.)

    Rant, rant, rant … paulg … all the “rules” have changed since the last time you mixed up a glass of Ovaltine. Wake up and smell the … trash.

  12. paulg
    Posted December 22, 2006 at 11:08 pm | Permalink

    Schutzman: it’s not at all stupid to rent. Where I live in the SF Bay area, it’s BUYING that’s stupid, at least in this market. The median price here is about $600K, and that’s for an old, small dump. Mortgage interest + property taxes (the loss of buying) is way more than the average rent, even after deductions. That’s how I analyze it- compare the losses involved in the two alternatives.

    Personally, I’m waiting for the housing bubble to burst before I think about buying.

    Egpenet, experts don’t do any better in the stock market than the average Joe. It’s famously unpredictable, except for its 8-10% gain over the long term. There was a great study done by one of the financial magazines awhile ago- it asked several Playboy bunnies to select stock portfolios. The bunnies, knowing nothing of the market, simply picked companies they were familiar with and whose products they used and liked. It turned out that the bunnies’ portfolios outperformed something like 80% of professionally managed mutual funds. There are lots of similar stories. Monkeys throwing darts at the newspaper stock pages get similar results.

    The problem isn’t that the professional fund managers are (necessarily) incompetent, just that, on average, they can’t outperform the general market enough to overcome the drag of their fees.

    “Many, many retirement plans were wiped out (or cut more than 70%) by the tech stock bust”

    Yeah, I know. :) Not just retirement plans… sometimes the majority of one’s net worth…

    There IS something to be said for the simplicity of being poor. By being focused on concrete goals such as food and shelter, you get to escape the ennui, boredom, brooding, self-destructiveness, stupor and emptiness of middle class existence. :)

  13. JL
    Posted November 2, 2007 at 6:29 pm | Permalink

    The guy was lying, or at least misleading.

    Poverty rates today are far lower than they were in the 20’s, or the 50’s, or the 60’s. Median incomes are far higher than they were in the 20’s, 50’s, or 60’s.

    Who gives a crap if there’s “inequality”, as long as most people are living better? Isn’t that what really matters? Or do we really prefer an equality of poverty and misery?

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