I always love it when David Brooks and Paul Krugman tussle on the pages of the New York Times. On Monday, Brooks wrote a column called The Wrong Inequality, arguing that the Occupy Movement was wrong to target the 1% and that the real inequality problem was between the people who didn’t have a college degree and those who did. This is what I call the feeble attempt on the right to change the subject.
So this morning Krugman weighs in with Oligarchy, American Style and without ever mentioning Brooks by name, performs an epic smackdown.
Pundits try to put a more benign face on the phenomenon, claiming that it’s not really the wealthy few versus the rest, it’s the educated versus the less educated.
So what you need to know is that all of these claims are basically attempts to obscure the stark reality: We have a society in which money is increasingly concentrated in the hands of a few people, and in which that concentration of income and wealth threatens to make us a democracy in name only.
He then goes on to point out that the biggest gains are really going to the top .01%, whose incomes have risen more than 400% since Ronald Reagan first started cutting taxes for the wealthy. Of course the rationale for Republican supply side economics from 1980 on has been that cutting taxes on the wealthy encourages investment in the productive industries which in turn fuels employment for all, leading to higher consumption of products in a virtuous circle. But that obviously is not working out to be true and so the Republicans now contend that the investment of all this surplus wealth from both corporate and billionaire balance sheets is not happening because they are “uncertain about the future” under the Obama administration.
This is nonsense. What has happened in the last 30 years is very clear. Because all of the income gains have gone to a very small number of people, the purchasing power of the average household has fallen dramatically. For a while (1989-2006) this was masked by the explosion of consumer credit as people used their home equity like an ATM to keep up with the aspirational lifestyles of the rich and famous. As for the rich and famous, they were not investing in new productive enterprises, they were speculating in the casino we call Wall Street. Investment bankers worked long hours to invent new instruments of speculation as the explosion of derivatives masked the sad truth that the traditional role of finance as the engine of new enterprise faded into the background noise on the trading floor.
As for the one real area of Innovation in our society, the Internet Industries, it has become increasingly obvious that the capital needs of these businesses are relatively low compared to the last boom of industrialization that fueled the post war growth of steel, autos, chemicals and oil. Why else would Microsoft, Apple, Google and IBM each have over $50 Billion in cash sitting in the bank?
We are not going to get out of this stagnation until the gains of our economy are spread a little bit more evenly. The Koch Brothers and their mouthpiece Herman Cain (with Rick Perry in the Green Room) are trying to cut their taxes even further by floating flat tax proposals. I think an election fought on the lines of “Whose side are you on?”–forcing the Republicans to defend their “Oligarchy, America Style”–will be good for our fading democracy.