Sunday, January 08, 2006

A rising tide sinks some boats

Brad Delong quotes Prairie Weather quoting the Gadflyer:
Why the current "boom" feels so un-boomy. First, as Henwood has noted previously, this recovery is the second weakest since World War II. In other words, even just considering GDP growth, the current rates are comparatively quite unimpressive. Second, Henwood points out that median household income fell every year between 1999 and 2004.

Henwood writes, "this is the first time since the census bureau began publishing figures for household income in 1967 that there have been five negative signs in a row." (there were four in a row each in the early 80s and early 90s). Third, income inequality in the United States in 2004, as measured by GINI coefficients, was higher in 2004 than it had been at anytime since the early 1940s. Many people like to think of inequality as left-wing harping when leftists can't think of anything else to complain about. But, inequality is directly germane to Joshua's article: if the economic gains of a particular period are significantly skewed to benefit a relative few (i.e - there's growing inequality) - why is it a mystery why most people don't feel that they've benefitted from the supposed boom?
We've discussed this before. A rising tide only raises all boats if the boats aren't tied off too low. If they are, those low boats sink.

In a comment about tax policy, an intriguing point was raised:

Much of that complexity [in the tax code] comes from tinkering with the tax code to encourage or discourage certain activities. That, of course, is not what a tax code is for, and we should quit doing that.
While one could dispute the claim about where the complexity originates, I'm intrigued by that last point.

Any decision about tax policy will have consequences that encourage or discourage certain activities, and that harm one group or another more than others.

The last 5 years have seen tax policy shift which has made the already rich more able to keep their money, while making it harder for anyone to become rich, or to get the benefits of economic growth.

Whatever the principled merits of taxing or not taxing dividends, or taxing or not taxes estates, changing those rules only changes how much richer a very rich person can become. Boosting the EITC would have helped poor people improve their lives. Increasing tax benefits for low income workers who buy health insurance would help poor people improve their lives. Those are activities we ought to encourage, and I doubt anyone disputes that those are more valid goals that helping the already wealthy become wealthier.