January 02, 2004
The Second Gilded Age

Paul Krugman writes: Op-Ed Columnist: Our So-Called Boom: ...An aside: how weak is the labor market? The measured unemployment rate of 5.9 percent isn't that high by historical standards, but there's something funny about that number. An unusually large number of people have given up looking for work, so they are no longer counted as unemployed, and many of those who say they have jobs seem to be only marginally employed. Such measures as the length of time it takes laid-off workers to get new jobs continue to indicate the worst job market in 20 years. So if jobs are scarce and wages are flat, who's benefiting from the economy's expansion? The direct gains are going largely to corporate profits, which rose at an annual rate of more than 40 percent in the third quarter. Indirectly, that means that gains are going to stockholders, who are the ultimate owners of corporate profits. (That is, if the gains don't go to self-dealing executives, but let's save that topic for another day.) Well, so what? Aren't we well on our way toward becoming what the administration and its reliable defenders call an "ownership society," in which everyone shares in stock market gains?...

Posted by DeLong at 08:09 AM

The Second Gilded Age

The Economic Policy Institute points out that while real GDP grew 3% in the second half of 2003, real wages did not grow at all....

Posted by DeLong at 08:02 AM

December 21, 2003
What Is Happening to the Labor Share?

Rapid productivity growth with 6% unemployment appears to be a very different animal than rapid productivity growth with 4% unemployment, at least as far as income distribution is concerned. The New York Times's Louis Uchitelle reports: Economic View: A Recovery for Profits, but Not for Workers: ...But while profits have shot up as a percentage of national income, reaching their highest level since the mid-1960's, labor's share is shrinking. Not since World War II has the distribution been so lopsided in the aftermath of a recession. Profits, it turns out, never stopped rising as a share of national income all through the 2001 recession and the months afterward of weak economic growth. That did not change even as the recovery kicked in strongly last summer and hiring resumed. New data from the Bureau of Economic Analysis erases all doubt on this point. The reasons for labor's poor showing are not hard to spot. The employment rolls are still smaller, by 2.4 million jobs, than they were at the recession's start in March 2001. Those who are employed are also feeling the squeeze, particularly the 85 million people who hold office or factory jobs below the rank of supervisor or manager....

Posted by DeLong at 05:02 PM

December 18, 2003
Long Term Consequences of Republican Party Government

Paul Krugman's take on what the long-term consequences of government by the Republican Party would be: The Death of Horatio Alger: ...It is true, however, that America was once a place of substantial intergenerational mobility: Sons often did much better than their fathers. A classic 1978 survey found that among adult men whose fathers were in the bottom 25 percent of the population as ranked by social and economic status, 23 percent had made it into the top 25 percent. In other words, during the first thirty years or so after World War II, the American dream of upward mobility was a real experience for many people. Now for the shocker: The Business Week piece cites a new survey of today's adult men, which finds that this number has dropped to only 10 percent. That is, over the past generation upward mobility has fallen drastically. Very few children of the lower class are making their way to even moderate affluence. This goes along with other studies indicating that rags-to-riches stories have become vanishingly rare, and that the correlation between fathers' and sons' incomes has risen in recent decades. In modern America, it seems, you're quite likely to stay in the...

Posted by DeLong at 05:42 PM

November 17, 2003
Class, Status, Ethnicity

T.T. Yang was one of my favorite students back when he was in his first year of graduate school, taking Econ 210a, Introduction to Economic History. I haven't seen much of him since--his dissertation advisors are Pranab Bardhan, George Akerlof, and Barry Eichengreen. Now he has emerged with a very interesting job market paper arguing that social and political conflict over resources is much, much more damaging when ethnicity reinforces class than when it cuts across it: T.T. Yang (2003), "Cleavage Patterns and Social Conflict: A Theory with an Application to Political Conflict Over Fiscal Policy": ...Alesina, Baqir, and Easterly (1999)... working with a large sample of U.S. cities... find that ethnic fragmentation and economic inequality are both good predictors of a number of [local] fiscal policy outcomes... evidence that social fragmentation... [is] making consensus more difficult and conflict more severe in the fiscal policy-making process.... I introduce a variable that measures the extent of inter-ethnic [economic] inequality in a U.S. city... [it] has a natural interpretation in the context of overlapping versus cross-cutting class and ethnic cleavages.... [My] measure... captures the extent to which non-white households are overrepresented among the relatively poor.... When inter-ethnic inequality is introduced alongside both...

Posted by DeLong at 11:47 AM

September 27, 2003
Robert Greenstein on American Poverty in 2002

The CBPP on American poverty in 2002: Poverty Increases And Median Income Declines  For Second Consecutive Year, 9/26/03: "Misplaced priorities by Congress and the President are making the increase in poverty larger than it needs to be," noted Center executive director Robert Greenstein.  "The temporary federal program Congress set up to help the long-term unemployed is significantly weaker than the comparable program established in the recession of the early 1990s.  That’s an important reason why the number of workers who ran out of those federal unemployment benefits without finding work was twice as big in 2002 as at a similar point in the last downturn. "Also, Congress and the President chose to exclude low-income working families from the increased child tax credit benefits that went to better-off families this summer," Greenstein added.  "Yet this year’s tax legislation will give people earning $1 million or more an average tax cut of $93,000."... So far in 2003, unemployment has been higher than it was in 2002.  In addition, the [estimated] number of long-term unemployed — those out of work more than half a year — has increased dramatically, from 650,000 a month in 2000, to 810,000 in 2001, 1.55 million in 2002,...

Posted by DeLong at 09:16 AM

September 24, 2003
My Favorite Paul Krugman Essay

As everyone knows, I am a huge fan and admirer of Princeton economist Paul Krugman*. Everyone should go and buy Paul Krugman (2003), The Great Unraveling: Losing Our Way in the New Century (New York: Norton: 0393058506). And everyone who can should try to go see him talk on Friday September 26, 12:00-1:30, Andersen Auditorium, Haas School, U.C. Berkeley. However, The Great Unraveling: Losing Our Way in the New Century doesn't contain my favorite Krugman essay. This is my favorite Krugman essay, from Paul Krugman (1998), The Accidental Theorist (New York: Norton: 0393046389).... An Unequal Exchange Paul Krugman To a naive reader , Edward N. Wolff's Top-Heavy: A study of the increasing inequality of wealth in America might seem unlikely to provoke strong emotional reactions. Wolff , a professor of economics at New York University, provides a rather dry matter of fact summary of trends in wealth distribution, followed by a low-key case for a modest wealth tax. Although Wolff has done a commendable technical job in combining data from a number of sources to produce a fuller picture-in particular his book tells us more about both long term trends and international comparisons that has previously been available-the rough outlines...

Posted by DeLong at 04:50 PM

July 09, 2003
Peer Pressure

Bob Herbert is really scared: Breaking Away: ..."I knew that it would happen because other friends had told me it would happen," said Ms. Jhingory. "But I was surprised that it would happen with friends that I was so close to, people I had grown up with from the time I was maybe 6 or 7. I actually ended friendships because of comments like that. We just couldn't connect anymore because it was just a really negative situation." I have no idea what the stats are, but I know this perverse peer pressure to do less than your best in scholarly and intellectual pursuits is holding back large numbers of black Americans, especially black boys and men. The other day I had a long conversation with a 15-year-old named David Blocker, who also happens to be from Washington. Until January, when he was expelled, David was a student at the Hyde Leadership Public Charter School. "We were so lackadaisical," he said. "One-third of our school was failing three or more classes. The pressure from my friends was mostly to chill and, like, do what you want to do. People were not doing their work, just coming to school for fun,...

Posted by DeLong at 09:10 PM

June 27, 2003
Inequality by Race

A correspondent asks: ...do you support AA for... upper-class blacks whose families have been wealthy for four or more generations? It seems worth pointing out that that is almost the empty set. There are (virtually) no African-Americans whose families have been wealthy for four or more generations. There are (damn few) African-Americans whose families have been wealthy for two generations. Tom Hertz has a sample of 2,389 African-Americans born between 1950 and 1970s. How many of them had parents whose incomes put them in the top 5% of nationwide incomes? Not 120 (which would be the case if African-Americans a generation ago had the same income distribution as whites). Not 60 (which would be the case if African-Americans a generation ago had half the chance of being in the top 5% of the nationwide income distribution as whites). But 3. Three. THREE. The incomes of the so-called "Black Bourgeosie" were, by the standards of rich white guys, no great shakes......

Posted by DeLong at 03:02 PM

June 26, 2003
Different From You and Me

John S. Irons writes about how The Rich are Getting Richer......

Posted by DeLong at 11:42 AM

May 29, 2003
A "Klong!" Moment

It's amazing. I can read these papers three or four times. Edit these papers. Talk to the authors about these papers. And still, when I reread them, I get these "Klong!" moments as I run across totally unexpected pieces of information... For example, from Samuel Bowles and Herbert Gintis (2002), "The Inheritance of Inequality," Journal of Economic Perspectives 16:3 (Summer), p. 7: "Mobility patterns by race also differ dramatically (Hertz, 2002). Downward mobility from the top quartile to the bottom quartile is nearly five times as great for [American] blacks as for whites. Thus, whatever it is that accounts for their success, successful blacks do not transmit it to their children as effectively as do successful whites. Correspondingly, blacks born to the bottom quartile attain the top quartile at one half the rate of whites..." Klong! The top quartile -> bottom quartile intergenerational transmission number is something like 6%. Does that mean that 30% of children of African-Americans in the top quartile of income wind up in the bottom quartile? The bottom quartile -> top quartile intergenerational transmission number is also something like 6%. I suppose that means that only 3% of children of African-Americans in the bottom quartile of...

Posted by DeLong at 04:54 PM

April 20, 2003
Future Consequences of High Wealth Inequality

Thomas Piketty thinks that the U.S. is headed down a destructive road that will rob it of many of its social and economic advantages: a road in which family- and inheritance-driven wealth inequality gives the relatively-feckless children of the rich advantages that mere merit cannot outweigh--a society with a true aristocracy. I don't think he is right, largely because I don't see current trends as continuing, but as highly likely to be reversed in the next generation. On the other hand, America is a society where one-fifth believe their incomes are in the top 1%, and where another fifth believe their incomes will be in the top 1%. Perhaps American society will continue to move in a direction in which are institutions are tuned to suit the convenience of those at the very top of the pyramid. Daniel Altman: ...The shares of income controlled by the highest-earning Americans are already higher than at any time since the 1920's, according to Thomas Piketty, a former professor of economics at M.I.T. who is now the director of studies at the École des Hautes Études en Sciences Sociales in Paris. In an e-mail message last week, he predicted severe effects from the further...

Posted by DeLong at 08:26 PM

February 22, 2003
Notes: Relative Wage Gaps by Race

*Sigh* Yet another depressing thing to cross my desk this morning... Is the Convergence of the Racial Wage Gap Illusory? by Amitabh Chandra | NBER Working Paper No. w9476 | I demonstrate that the literature on the racial wage gap has systematically overstated the gains made by African American men by ignoring their withdrawal from the labor force. Three sources of selection-bias are identified: imposing sample selection criteria based on labor supply, trimming wages on the basis of real-dollar cutoffs, and making inferences based on Current Population Survey (CPS) data whose truncated sampling design excludes the growing incarcerated population. To recover the counterfactual distribution of skill-prices for non-workers, I implement a quasi-bounds estimator that does not require the use of arbitrary exclusion restrictions for identification and find that: (1) Corrected estimates of the racial wage gap indicate a substantial role for the efficacy of the Civil Rights Act and related initiatives in affecting convergence in segregated states; ignoring selection causes estimates of convergence in the South as well as the within-cohort component of this change to be understated. (2) In contrast to the sharp convergence observed in standard wage series from 1970-90, selectivity corrected estimates indicate complete [relative wage] stagnation......

Posted by DeLong at 12:16 PM

August 12, 2002
A Little Bit of Social Insurance in the Policy Mix

Eric Toder, Elaine Maag, and Frank Sammartino perform a useful service in summarizing the tangled mess of red tape by which the U.S. government seeks to provide social insurance to low-income families through the tax system. Max Sawicky and company have a nice proposal for basically rolling all of the different tax-expenditure programs into one. Should things turn out well in November, 2003 might actually see some red tape-cutting and program-rationalizing reform. But action will have to come from the Congressional side... Tax Policy Center | A Project of the Urban Institute & the Brookings Institution ...Tax incentives are popular because they represent a way of increasing federal support for social policy, while seeming to cut taxes rather than increase spending. Compared with direct outlay programs with similar goals, tax incentives better meet the need of politicians to expand programs while appearing to restrain the size of government. That is, the incentives show up as tax cuts rather than spending increases, even if they have the same economic effect. Consequently, they often appear more politically attractive than spending programs designed to achieve the same ends. Federal budget rules established in the 1990s encouraged the growth of tax expenditures. The rules...

Posted by DeLong at 02:11 PM

June 14, 2002
Krugman: Plutocracy and Politics

Paul Krugman has two extraordinary excellences: the first is to figure out the way to model a problem in economics to make the answer obvvious and clear; the second is to say what is generally known in such a crystal-clear manner that thereafter it is hard to think of it in any other way. These two skills--one technical, the other rhetorical--must be closely related somehow. Here in this morning's New York Times is an example of Krugman doing the second: Plutocracy and Politics Plutocracy and Politics By PAUL KRUGMAN Kevin Phillips's new book, "Wealth and Democracy," is a 422-page doorstopper, but much of the book's message is contained in one stunning table. That table, in the middle of a chapter titled "Millennial Plutographics," reports the compensation of America's 10 most highly paid C.E.O.'s in 1981, 1988 and 2000.In 1981 those captains of industry were paid an average of $3.5 million, which seemed like a lot at the time. By 1988 the average had soared to $19.3 million, which seemed outrageous. But by 2000 the average annual pay of the top 10 was $154 million. It's true that wages of ordinary workers roughly doubled over the same period, though the bulk...

Posted by DeLong at 10:19 AM