Saturday, November 03, 2007

A Review of a Review of "The Concience of a Liberal"

Paul Krugman praises Michael Tomasky's review of his book so I will comment on the review as I haven't read the book.

I have two thoughts. One is "ever heard of Joe McCarthy". I mean what is this

There may again someday be a time when bipartisanship can flourish as it did in the mid-twentieth century. As Krugman writes,

The great age of bipartisanship wasn't a reflection of the gentlemanly character of an earlier generation of politicians. Rather, it reflected the subdued nature of political conflict in an era when the parties weren't that far apart on basic issues.

They weren't far apart on the real issues, but the Republicans pretended otherwise when they found it convenient. The 50s weren't a great decade for civil liberties either.

Another is what is all this about CEO's. there is a problem with Tomasky's excerpt of Krugman's explanation of the exploding incomes of the super rich "He argues that what has happened is

largely due to changes in institutions, such as the strength of labor unions, and norms, such as the once powerful but now weak belief that having the boss make vastly more than the workers is bad for morale.

The problem is that, while the compensation of the top officers of large corporations is obscene, it is not large compared to GDP. The sum of total compensation of the top 5 officers of the top 2000 corporations is about $ 30 billion -- a small fraction of the income of the top 0.1%. Such compensation is only possible if they are not afraid of their workers and if they can find people who don't perceive it to be theft. However, most of the huge income plus capital gains of the super rich and even most of labor income of the super rich is going to other people. Giant incomes are much concentrated in finance.

In finance there wasn't much of a way to make huge incomes in the 50s because almost nothing was happening. There is not a daily closing price for many shares in many days in the 50's because not one share of some companies was bought or sold for the entire trading day. Many assets, including the ones which have made huge fortunes for the few and are now making equally huge losses for the many didn't exist then.

I think the low trading, low volatility and huge but not immensely huge incomes of financiers in the 50's had to do with the trauma of the great crash. That, at least, is the conventional view. It is also frequently argued that a problem with high marginal tax rates is that they make all sorts of financial shenanigans profitable (neither Krugman nor I have much bad to say about high marginal tax rates).

I'd say that the absurd behavior of the upper tail reflects social norms in only a small subculture and attitudes towards finance which have changed from fear to greed.

Considering the intersection of money and politics, remember the Coushattas (Abramoff's best clients). They were raking in the dough and not because they didn't care about their worker's morale (they were a tribe not bosses) but because they had a casino. If people stopped gambling, they wouldn't be able to bribe politicians.

I'd say the increase in US inequality has a lot to do with another tribe -- the new Manhattens who have found people willing to make deals as bad as that their namesakes made when the sold the island for $20.

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