Tuesday, July 25, 2006

Left Behind Economics: I'm Glad Someone Else Has Noticed

A friend of mine sent me "Left Behind Economics" which is a commentary by Paul Krugman. It was published on June 14th in the New York Times, but you have to be a subscriber to access the article on the NYTimes website. Since I'm a student I can access it online through my university's library website. However, the one thing I'm good at is research. I can find just about anything quickly and, usually, for free. I found it for your reading pleasure on another blog called the Economist's View, so here it is.

The title is a play on the concept of trickle down economics which holds that "...to benefit the wealthy is to benefit the middle classes and even the poor."
Essentially, the rich folks and business owners will stimulate the economy and this would yield benefits that would trickle down to people with less money and assets.

First, let me say that I know Im not an economist. My insights are ancedotal at best. I'm essentially a fledgling political philosopher. My philosophy definitely has a basis in Thomas Hobbes belief that life is "solitary, poor, nasty, brutish and short." However, there are many schools of thought that have progressed past Hobbes Leviathan. Currently, Im captivated by Hedley Bull and the English School but seem to be stepping tentatively into social constructivism. What that means is while I think humans are capable of looking out for their fellow man that, most of the time, theyre looking out for number one.

However, even those not as well trained in economic theory have an opinion or two on the economy. Now I agree that in an ideal world where the better off were actually putting trickle down economics into action that it very well might work. However, those of us who are in the middle or lower classes know that nothing much seems to be trickling down to us. That's exactly what is happening right now because the current US government could care less about passing laws to help start that trickle.

Krugman essentially says the same thing.

I'd like to say that there's a real dialogue taking place about the state of the U.S. economy, but the discussion leaves a lot to be desired. In general, the conversation sounds like this:

Bush supporter: ''Why doesn't President Bush get credit for a great economy? I blame liberal media bias.''

Informed economist: ''But it's not a great economy for most Americans. Many families are actually losing ground, and only a very few affluent people are doing really well.''

Bush supporter: ''Why doesn't President Bush get credit for a great economy? I blame liberal media bias.''

To a large extent, this dialogue of the deaf reflects Upton Sinclair's principle: it's difficult to get a man to understand something when his salary depends on his not understanding it. But there's also an element of genuine incredulity. Many observers, even if they acknowledge the growing concentration of income in the hands of the few, find it hard to believe that this concentration could be proceeding so rapidly as to deny most Americans any gains from economic growth.

Yet newly available data show that that's exactly what happened in 2004.

Edward Lazear believes that economic inequities arise between those with a lot of education and those without it. I think I and a whole host of highly educated people would beg to differ. Good for us, statistics have just come out to back this up as census data shows that the earnings of college graduates actually fell in 2004.

Two economists, Thomas Piketty and Emmanuel Saez, have shown that in 2004 the richest 1 percent of Americans experienced an income increase of 12.5 percent. The other 99 percents average income rose only 1.5 percent. Now Im sure that those of us in that 99 already know this.

Most of the people I went to school with are in the middle to upper middle class; I'm not, but they are. Usually, thats not a bad place to be. However, the article points out that even the upper middle class or people richer than 19 out of 20 Americans gained only modestly. The fact is these economic benefits arent trickling down to anyone. Instead, theyre pooling around the feet of those who already have the most.

The next time a friend is going on and on about how there media isnt talking about this vibrant US economy, you might want to bring up that most you know havent seen much of that vibrancy in their own finances. I think Krugman sums it up well.

In short, its a great economy if youre a high-level corporate executive or someone who owns a lot of stock. For most other Americans, economic growth is a spectator sport.

Sphere: Related Content