The Mystical Secret To Economic Growth

Kevin Drum on the economy.

This isn’t just a matter of social justice. It’s a matter of facing reality. If we want a strong economy, we can only get it over the long term if we figure out a way for the benefits of economic growth to flow to everyone, not just the rich. This is, by far, Barack Obama’s biggest economic challenge. Until median wages start rising steadily and consistently, we haven’t gotten ourselves back on track

In other words, the secret to sustainable economic growth is to make sure that a ton of people have a modest amound of disposable income. Having a few of people with a shitload of income, while the rest worry about medical bankruptcy, worked out less well.

As with so many things (to pick the most recent example, this) I have some thin hope that help is finally on the way.

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35 replies
  1. 1
    Reverend Dennis says:

    In other words, the secret to sustainable economic growth is to make sure that a ton of people have a modest amound of disposable income.

    There is the little problem that almost all of our industries have been outsourced with the result that 60% of our economy is based on selling each other stuff that we don’t need made by people who live an ocean away.

  2. 2

    It’s called a middle class, the bane of would be oligarchs. The perennial battle that begins on day one of every free market Democracy. Between those few who want to exalt themselves above the peasant rabble by hording pesos, and using them to buy political power, and the peasant rabble who just want a fair share of the pie. Overall, we’ve done pretty well in comparison to the ancient Romans and Greeks, but right now the pendulum needs to swing back away from the Mercedes class and toward the Ma and Pa Kettle one. I’m fairly optimistic, and glad we got a presnit who understands this above all else.

  3. 3
    Joshua Norton says:

    All these now-collapsing "e z credit" hijinks fooled people into not noticing that their actual pay has been stagnant since Chimpy took over.

    Who needs money when you have a pocket full of credit cards (at 23%) and a mortgage broker will lie to get you an ARM loan for your overpriced "fixer-upper"?

  4. 4
    Reverend Dennis says:

    Between those few who want to exalt themselves above the peasant rabble by hording pesos, and using them to buy political power, and the peasant rabble who just want a fair share of the pie.

    Look, only 90% of the nation’s wealth is in the hands of less than 10% of the population. If we just give them the rest of the money then things are bound to smooth right out.
    /Republicans

  5. 5
    The Other Steve says:

    I’m feeling trickled down upon.

  6. 6
    Laura W says:

    @The Other Steve: Golden parachute shower.

  7. 7
    Calouste says:

    @Reverend Dennis:

    Look, only 90% of the nation’s wealth is in the hands of less than 10% of the population. If we just give them the rest of the money then things are bound to smooth right out.
    /Republicans

    Look, we have to give the richest 0.1% all of the money because they can look after it the best. That’s why they are rich, aren’t they? Because they can look well after money.

    If you are poor, then you clearly can’t look after money, so you shouldn’t have any.

    /Republican circular reasoning

  8. 8
    DougJ says:

    I think that we’ll do just fine as long as we keep the hedge fund managers happy. Check this out from the Times via TAP:

    One patient, a hedge fund analyst, came to me recently in a state of great anxiety. "It’s bad, but it might get a lot worse," I recall him saying. The anxiety was expected and appropriate: he had lost a great deal of his (and others’) assets, and like the rest of us he had no idea where the bottom was. I would have been worried if he hadn’t been anxious.

    Over the course of several weeks, with the help of some anti-anxiety medication, his panic subsided as he realized that he would most likely survive economically.

    But then something else emerged. He came in one day looking subdued and plopped down in the chair. "I’m over the anxiety, but now I feel like a loser." This from a supremely self-confident guy who was viewed by his colleagues as an unstoppable optimist.

    He was not clinically depressed: his sleep, appetite, sex drive and ability to enjoy himself outside of work were unchanged. This was different.

    The problem was that his sense of success and accomplishment was intimately tied to his financial status…

    We’re supposed to get all teary-eyed that this previously eight figure fuck can’t get it up anymore now that he’s just a seven figure fuck.

    It is surely stories such as this that give history its Robespierres.
    —Stendhal

  9. 9
    Reverend Dennis says:

    I wonder how much more money people would have in their pockets if we had UHC. I know that it would have to be paid for so all of the money wouldn’t be magically freed up although I suspect that not having to make out of pocket co-pays and the absence of spiraling deductibles would free up a nice chunk of change for many of us.

  10. 10

    @Reverend Dennis:

    I wonder how much more money people would have in their pockets if we had UHC

    Haven’t you heard, UHC will cause everyone to die because the government can’t do anything right. We are much better off with just the 40 million people dieing due to them being lazy liberal losers who spend their money on meth and fancy countertops, instead of buying healthcare. Common sense should tell them that their 12, 000 year Walmart salary should go to buy the average 12,000 a year health plan. Bunch of slackers looking for gubmint handouts.

    /republican

  11. 11
    DougJ says:

    We are much better off with just the 40 million people dieing due to them being lazy liberal losers who spend their money on meth and fancy countertops, instead of buying healthcare. Common sense should tell them that their 12, 000 year Walmart salary should go to buy the average 12,000 a year health plan.

    Damn straight.

    And they wouldn’t need those granite concrete countertops if they weren’t alternately cooking meth and slicing arugula in their kitchens.

  12. 12
    AhabTRuler, V says:

    I wonder how much more money people would have in their pockets if we had UHC sane, honest leaders. I know that it sensible solutions would have to be paid for so all of the money wouldn’t be magically freed up although I suspect that not having to make out of pocket co-pays and the absence of spiraling deductibles support the corrupt plutocracy would free up a nice chunk of change for many of us.

    Fixed.

  13. 13
    Dave L says:

    Here’s where you go wrong: "If we want a strong economy,…"

    Who said any of this was about wanting a strong economy? "Strong economy" was like WMD in Iraq, the best excuse for doing what you wanted to do anyway: lower taxes, invade a country.

    The people made rich by Republican tax policy aren’t going to let a little thing like a depression change their view of the essential rightness and cosmic justice of their remaining fabulously wealthy. We can revile them, even laugh at them, but they will fight like hell to keep what they’ve got.

  14. 14
    Reverend Dennis says:

    @Comrade Stuck:
    Yes, and how pissed will those 40 million be if they can’t choose their own doctor like they do now, like those with PPO’s do as well. Every time I hear about another big layoff, almost a daily occurrence now, I think "Well, there’s another few thousand families with no health care." Republicans couldn’t have done a better job of turning this country into a Banana Republic if they’d tried.

  15. 15

    The key to maintaining and/or achieving good wages for America’s workforce is to recognize that the wealth of nations correlates very closely with the IQ of nations’ populations. This is an uncomfortable topic. Per capita GDP doubles with a 10 point increase in average IQ.

    If we, as a nation, were able to agree to accept the data, we would recognize that Americans from most socioeconomic groups would benefit by only accepting high IQ immigrants. I’d set the limit at 110. The oligarchs do not want this to happen, as it would raise the cost of labor, by reducing its supply, and cost them money.

    The other socioeconomic class to suffer from immigration controls would be the political class, who are pushing for an uninformed electorate to whom they have little accountability. Central America is their model.

  16. 16
    Reverend Dennis says:

    Per capita GDP doubles with a 10 point increase in average IQ.

    That means that you could single-handedly double our GDP just by moving to another country.

  17. 17

    If we, as a nation, were able to agree to accept the data, we would recognize that Americans from most socioeconomic groups would benefit by only accepting high IQ immigrants

    Or, we could make wingnuts fight their own wars. Think about it, but not too long.

  18. 18
    Delia says:

    Look, we have to give the richest 0.1% all of the money because they can look after it the best. That’s why they are rich, aren’t they? Because they can look well after money.

    If you are poor, then you clearly can’t look after money, so you shouldn’t have any.

    /Republican circular reasoning

    Or take it to its logical conclusion: just hand over all the money, every last penny, to Bernard Madoff. He certainly knows how to steal it better than anyone else.

    //super-republican

  19. 19

    The rich rarely fight their own wars Comrade Struck. The rich are most concerned about rates of return from their gated communities. The burdens of warfare, and immigration, are, and probably always will be, placed squarely on the backs of the working class. I am a veteran of the line, by the way.

  20. 20
    DougJ says:

    Or take it to its logical conclusion: just hand over all the money, every last penny, to Bernard Madoff. He certainly knows how to steal it better than anyone else.

    Maybe just everyone with an IQ over 110 should do this. You know, they say that with every 10 additional IQ points, your return on a Ponzi scheme should double. Just so long as you can get other high IQ people to keep investing.

  21. 21
    Balconesfault says:

    @Reverend Dennis:

    turning this country into a Banana Republic if they’d tried.

    Frankly, this echoes what krugman was saying about 5 years ago, when he justified his turn towards being more political with his NY Times columns…

    Even though the business community is starting to get scared — the ultra-establishment Committee for Economic Development now warns that ”a fiscal crisis threatens our future standard of living” — investors still can’t believe that the leaders of the United States are acting like the rulers of a banana republic.

  22. 22

    @Brick Oven Bill:

    The subject was how to increase the national IQ, Fewer wingnuts = More smart people. Simple formula really. BTW, why aren’t you in Iraq?

  23. 23
    Martin says:

    True christmas party story…

    One of the wealthy folks I know is very excited about the economy as he figures he can upgrade his jet to a Gulfstream 4 for cheap as virtually all of them are hitting the market at bargain prices (G4 will fly from SoCal to London nonstop, seats 10ish, really popular with the hot-shit bond folks and executives here that are, shockingly, now all going bankrupt). In order to get the whole family and necessary friend on board (the staff flies commercial ahead of time) it’ll need a remodel which he figures will only cost about a mil (he says with a dismissive wave of his hand.)

    Now, this will of course help the economy somewhat, but not much. Sure there are jobs attached to the remodel and jobs attached to the materials for the remodel and some in the sale of his old Gulfstream and purchase of the new one and so on and so forth, but the reality is that in order to do this (with a dismissive wave of the hand), a person really needs to be sitting on hundreds of millions of dollars not being funneled to jobs. And much of the money is just moving from ballpark-billionaire to GM, Bear Sterns, etc.

    The economy runs by upgrading people millions of people from food banks to McDonalds and from McDonalds to Applebees, not from a handful moving from Tavern to Masa. Bring back a 75% top marginal tax rate until the national debt is paid off – it won’t stop me from trying to make more money. And anyone caught with a bank account in the Caymans can repay their federal tax liability by personally helping to stabilize Afghanistan. Pisses me off that my kids are going to inherit this mess.

  24. 24
    Martin says:

    The problem was that his sense of success and accomplishment was intimately tied to his financial status…

    That’s a problem? You just described 90% of Orange County. Is there something I can put in the water here to cure these shallow, meaningless fuckers?

  25. 25
    TenguPhule says:

    Is there something I can put in the water here to cure these shallow, meaningless fuckers?

    Cyanide.

  26. 26
    AnneLaurie says:

    There is the little problem that almost all of our industries have been outsourced with the result that 60% of our economy is based on selling each other stuff that we don’t need made by people who live an ocean away.

    Luckily, rebuilding our infrastructure & our educational system so that we can repatriate our manufacturing base is enough to keep every American busy for the next generation or two. Or approximately the same amount of time it took the Robber Barons, the fReichtards, and the Talibangelicals to wreck everything they touched in their efforts to reduce America to another colony of the Global Plantation Empire, assuming that the rot began with the "Goldwater Revolution" circa 1964.

  27. 27
    Xenos says:

    Cyanide.

    How early do I have to get out of bed to keep up with people here?

    Wait – don’t answer that question!

  28. 28

    […] In other words, “spread the wealth around.” See also Paul Krugman and Tim F. at Balloon Juice. […]

  29. 29
    jenniebee says:

    If you haven’t read The Shock Doctrine, then do. You must. It’s absolutely 100% positively necessary. It goes a long way beyond the little blurb that hosts like Bill Maher gave it when Naomi Klein was on his show. It’s terrifying, and the knowledge of what is being done and how it’s being done and what the after effects are are vitally, vitally important.

    Go. Now. Do. Read. Srsly.

  30. 30
    ksmiami says:

    Now you understand why Republican has to become a bad word. These crazy, selfish assholes practically bankrupted our nation and they don’t fucking care – well except for maybe Huckabee which is why he didn’t have a shot. BTW, when will Chris Cox step down???

  31. 31
    Jasper says:

    Chris Cox did his job beautifully – why would he step down?

    Like the banking regulators did their job and the Federal Reserve did their job. People were made fabulously wealthy, which was the point of having people like Chris Cox and institutions like the Fed doing the non-regulating and non-oversight.

  32. 32
    steve says:

    republicans bankrupted the nation??!!!..you are a fool…both parties bankrupted the nation spending money we dont have….

  33. 33
    Eric K says:

    Here was my comment in the earlier thread about UAW wages:

    The majority of the right (primarily Republicans of course, but plenty of Conservative Dems as well) are in denial that the economic policy of the last 30 years is a complete failure.

    The problem isn’t that auto-workers make too much money, the problem is that the vast majority of middle class workers make too little and can’t afford to buy cars. GM and Chrysler are in the most trouble since they were the weakest to begin with, but even Toyota is worried. Real wages have been stagnant or declining for at least 30 years. We’ve hidden the affect through looser credit and various bubbles, the latest of course being turning houses into ATMs. Sure it is easy to say people shouldn’t have spent more than they made, but the dirty secret is the economy is dependant on people consuming at the levels they have been. If the economy hadn’t been growing at the rate it did the rich would have been a lot less rich as well. Sure the Rod Dreyer’s of the world who want us lead simpler lives churning our own butter and so on would have been happy, but I doubt the vast majority of the country would have been happy with a much smaller economy.

    The argument for our vast gap between rich and poor and somewhat free market economics and so on is supposed to be that it works better in the long run. Free trade hurts some people in the short run but eventually the overall GDP grows. But the problem is in order for the GDP growth to happen people need to consume, which requires everyone, give the mega rich more money and they just save it. To way oversimplify take a population of 100, in scenario 1 their total income is 100 million, distributed as 1 million each. In scenario 2 their total income is 120 million, distributed as 100 million to 1 guy and 20 million split between the other 99. In our system scenario 2 is considered better because the GDP is higher. Sure for this year, but what happens after 10 years of this? The only way for guy 1 to make any money off his investments is for the other 99 people to buy stuff, which they increasingly can’t do.

  34. 34
    Sock Puppet of the Great Satan says:

    "Per capita GDP doubles with a 10 point increase in average IQ."

    The paper you cite is based on Richard Lynn’s of the University of Ulster’s work.

    Lynn is a Northern Irish protestant who was on an anti-Catholic kick (he had an infamous paper where he claimed that the Republic of Ireland had a 10-point lower IQ than the UK, particularly in Dublin, and blamed this on kids in the Republic learning the Irish language, as a genetic explanation would hardly be credible.

    One wonders how he’d explain Ireland outstripping the UK in GDP/capita over the past decade-and-a-half? Sudden change in genetics? Did Ireland stop teaching Irish? Jesus wept.

    Later, when he figured out the grant money for arguing that Irish Micks were thick was going to be hard to come by, he turned to the Pioneer Institute, Vdare, etc. for the spondoolocks. More cash in beating up on the darkies.

    There’s another hilarious paper by him arguing that we’re heading for a dysgenic reduction in IQ, at the same time arguing that he should take credit for discovering the Flynn effect (i.e. the need to recalibrate IQ tests every decade or so because of the secular increase in scores).

    Lynn is a frickin’ clown, and so are you for citing work based on his "data".

  35. 35

    GM is in the worst shape because they were selling the most when things crashed and they got caught with a lot of built inventory and supplies when things hit a wall. That’s not to say they were smart, but they also out sold everybody in the world last model year.

    The Big 3 still suffer from reputations built in the 80s & 90s while building cars that meet or beat their competition in quality ratings. There is a real problem with that perception when you sell head to head on pricing, not so much when it was $.05 Japcans vs $1.00 American iron. Those days are long gone.

    I’m a car enthusiast, the 2004 SSR out does everything in its price class, while still being a silly truck. My wife’s old ’88 Civic CVCC was a piece of tin crap but it was cheap (new) and popular because of that. If you had to buy a part for it that hurt a lot. GM V8 starter $35, civic hamster I4 starter $300.

    We had an 03 Pontiac Grand Am that I actively disliked, uncomfortable and noisy, but solid body and good cheap power. No foreign car in its price class surpassed it and I didn’t like them either. My kid had a late 90s Toyota that was better than anything in its price class by a lot, repairs were horrid, but it lasted well.

    I deal in BIG ticket items and any problem is huge, no matter how small and customers don’t forget them or how they were dealt with. They haven’t, either. That’s the biggest problem.

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