The Coming Liberal Argument

December 19th, 2011 at 12:00 am | 51 Comments |

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Here is a real effect Occupy Wall Street is having on the liberal left. They will start to blame the current bad economy explicitly on income inequality.

Here is Heather Boushey writing at the Center for American Progress:

Take, for example, the housing bubble of the 2000s. It was facilitated in no small part by exotic mortgages that were sliced and diced and sold to investors who pushed home prices to hitherto unknown heights. And when it popped, millions of American families—through no fault of their own except the decision to buy a home—were left with mortgages greater than the value of their homes. High rates of foreclosure still plague our economy.

What is less-often discussed (until recently) is the role that inequality played in making the Great Recession and the subsequent slow recovery happen in the first place. Inequality has been rising for decades for most Americans in the form of stagnating incomes for the majority and sky-rocketing incomes for those at the very top. When income stopped growing, families responded by working more and borrowing more. As consumer activist Elizabeth Warren (with her daughter Amelia Warren Tyagi) documented, American’s debts are the direct result of a hollowed out middle class. Families borrowed to make ends meet, to cover health care costs, to put a child through college, and to purchase a home in a neighborhood with good schools.

The financial sector was only too happy to oblige. Increasingly unencumbered by regulation and flush with cash, Wall Street created a variety of new ways to extend credit. Basically, America didn’t get a raise and the financial sector said, “Don’t worry, buddy, we’ll loan you the money to pay the bills.” Of course, the whole thing was unsustainable. Thus came the Great Recession and the struggle ever since among everyday Americans to make ends meet, to cover health care costs, to put a child through college, and to purchase a home in a neighborhood with good schools.,

I would advise conservatives to start paying close attention to this argument. If President Obama runs on a platform of higher federal income taxes, this is how it will be justified. I wouldn’t be surprised if at some point in 2012, a Democratic congressman blames the financial crisis directly on the Bush tax cuts.

Boushey makes this argument in reference to a lot of other literature so a proper review of the evidence is needed, but one immediate question that comes to my mind is why middle class incomes were not rising.

If it was because healthcare costs were consuming all the productivity gains the American worker was making, then that suggests that better controls for healthcare costs could have saved everyone a lot of trouble. There can be a lot of arguments as to how best to do that, but that does not sound like a story about higher income taxes for the top 1% of society.

I suspect this argument will get more developed as the election season kicks off, especially if the Democrats develop a platform and message that is strongly against income inequality.

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51 Comments so far ↓

  • Emma

    Noah – I see you’re following standard republican tactics. First, misrepresent Democratic views. Second, obfuscate, hype. and conjecture on those misrepresentations until the real issues are barely recognizeable.

    Noah – this is pitiful. You’re capable of more than hackery.

    • Ray_Harwick

      The only problem I see, speaking as the resident dummy on FF, is that Noah didn’t teach me about how the poor connect the econonic downturn on the Bush tax cuts. I have a fairly good grip on the whole upside-down mortgage thing. I would just add that it was *merely* the problem of bankers lending money on houses with a price tag the buyer wasn’t qualified to afford, it was also the *criminal* assessments of the value of the home that set the bar on how much bankers were lending. The assessments strike me as the truly criminal act. The lending side is more like colossal irresponsibility.

      Okay, but back to my confusion. I don’t know if Noah wants to pipe in teach me this. I don’t understand how the dots are connected between 1) the poor blaming the economic downturn on 2) the Bush tax cuts.

      Teaching opportunity #2: “If it was because healthcare costs were consuming all the productivity gains the American worker was making, then that suggests that better controls for healthcare costs could have saved everyone a lot of trouble.”

      This provokes the “R” word from the Republican, doesn’t it? (regulation). I hear the House Republican have made de-regulation of *everything* a priority. No?

      And, I really like Noah’s question about why incomes aren’t rising. Anyone have an answer other than healthcare costs?

    • Graychin

      I second what Emma said.

      It’s really tiresome and disappointing to see straw-man canards like this on a website where one hopes to find intelligent argument from the conservative side.

      I guess that’s just about all they have.

  • SFTor1

    My fond hope is that the Democratic Party wins a House and Senate Majority in the next election, and taxes the hell out of the small class of oligarchs that are slowly strangling the US economy.

    The American People wants its money back. Now.

  • Andrew Eden-Balfour

    This is actually a very good argument the Center for American Progress has made, and I can agree with them on this.

  • SpartacusIsNotDead

    Income inequality and rising healthcare costs are two separate, but equally important issues. The Democrats have offered different rational proposals for each of these problems while the GOP has offered nothing for either one.

  • NRA Liberal

    This isn’t new at all. The argument that the GFC was driven by high rates of borrowing which were in turn driven by stagnant wages has always been prominent on “the left”. It has the added virtue of being true.

  • Ogemaniac

    “If it was because healthcare costs were consuming all the productivity gains the American worker was making, then that suggests that better controls for healthcare costs could have saved everyone a lot of trouble. There can be a lot of arguments as to how best to do that”

    Sure. We should have a serious debate over whether we should have Medicare for All, or VA for All. Those are the only two options which stand up to even the barest comparison to the facts.

    The idea that “competition” will solve our health insurance problems is simply incongruent with the facts (it has never worked anywhere) and inconsistent with theory that has been understood for decades, as least as far back as Ken Arrow’s classic paper. Any time you attempt to harness “competition”, adverse selection negates any possible gains, and usually more. Both the health care and health insurance markets are so heavily riddled with imperfect and asymetric information and non-competitive market segments that it is absolutely pointless to try to force this system within the limited confines of market theory.

    As for the broader point of this article, you are absolutely right that we will point out that income inequality is one of the causes of the Great Recession. Like the rest of our arguments, it has the virtue of being true and supported by the facts. While it is certainly not the only cause, like most of the others, it is a cause that was either created or exacerbated by Republican policy.

  • TerryF98

    “I wouldn’t be surprised if at some point in 2012, a Democratic congressman blames the financial crisis directly on the Bush tax cuts.”

    We have been making that argument in part for quite some time, the facts and the CBO agree with us. 3.7 trillion on wars of choice and the biggest give away to Pharma in history did not help. Facts for Noah are stubborn but irrelevant things.

    • Noah Kristula-Green

      You realize that the deficit is not the same as a collapse in aggregate demand, right?

      And that by making the argument you are making, you are actually appropriating Republican talking points about what the source of our current weak economy is…

      • TerryF98

        So Bush taking a surplus and turning it into a disastrous deficit has nothing to do with the decline in the economy! Dear, dear. Blinkers at dawn.

        Think Noah. How different the possible solutions to the financial collapse could have been were it not for the incredible debt Bush passed on at the same time. Please think a little deeper.

        Think Noah, How we could have had a much more effective stimulus if we were not burdened by a 1.5 trillion shortfall each year! Please think a little deeper.

      • Reflection Ephemeral

        I think the argument I’ve seen, Noah, is a bit different from that one.

        A series of studies and commentaries on the ill effects of inequality, and that chart, can be found here: http://www.globalresearch.ca/index.php?context=va&aid=25529

        A brief excerpt spells out the theory:

        First, the rich spend a smaller proportion of their wealth than the less-affluent, and so when more and more wealth becomes concentrated in the hands of the wealth, there is less overall spending and less overall manufacturing to meet consumer needs. Second, in both the Roaring 20s and 2000-2007 period, the middle class incurred a lot of debt to pay for the things they wanted, as their real wages were stagnating and they were getting a smaller and smaller piece of the pie. In other words, they had less and less wealth, and so they borrowed more and more to make up the difference. … And third, since the wealthy accumulated more, they wanted to invest more, so a lot of money poured into speculative investments, leading to huge bubbles, which eventually burst. … I am convinced that a fourth causal connection between inequality and crashes is political. Specifically, when enough wealth gets concentrated in a few hands, it becomes easy for the wealthiest to buy off the politicians, to repeal regulations, and to directly or indirectly bribe regulators to look the other way when banks were speculating with depositors money, selling Ponzi schemes or doing other shady things which end up undermining the financial system and the economy.

        I haven’t dug deep enough into the data, personally, but I can’t really reject that line of rationale out of hand. Your thoughts?

  • TJ Parker

    Hey Noah! Minor point: what if this argument is true?

    Summer 2008, before the financial crisis, I was working at XXXX in NYC and heard each of Greenspan, Rubin, and Summers name income inequality as one of our most serious problems.

    You really shouldn’t jerk yer knee so shamelessly in public. Examine the argument before preparing your response. At least pretend to examine the facts.

    Re health care: “Repeal and replace!” Duh, winning!™

  • kccd

    More than the economy is at stake. Democracy is dependent on dispersed political power. Money = power, and that power has become concentrated in the hands of the ultra-rich who not only control markets, but influence elections and buy politicians. This will get worse before it gets better, because Repubs like this imbalance.

  • nhthinker

    Democrat Bumper Sticker:

    Party of Borrowing, Bailouts for Buddies, and Blocking traffic on Bridges and Ports

    The Democrats will end up regretting tying themselves to OWS as the seedier elements continue to take more actions that cause news… the convention season will be quite a show.
    I predict that by summer time even most of the Democrats will end up disavowing OWS.

    We are now at a point where over half of Americans live in family households where every year they consume more in government subsidies than they pay back in taxes: Aesop’s grasshoppers.

    Democrats pretend that they have a formula for lowering that number of “grasshoppers” by fabricating more demand from people that are currently a drain on national wealth. The trade deficits will continue to go up as the overheated spending continues- the ant’s stores will continue to be raided at more than half a trillion in wealth per year.

    To me, it’s not clear that democracies can survive more than 100 or 150 years without high moral character being instilled by religion, unless the democracy has much higher than average natural resources that they can sell. Countries that have higher population to resources can use gimmicks to stave off the financial reaper for a few decades, but the idea that over half of a population consumes more than it produces just is not sustainable. Today’s social programming being attempted in public schools is generally much too weak to be effective.

    When you have Republicans like Newt Gingrich arguing that working for Fannie and Freddie are private sector jobs, then you know your free-market country has lost its way.

    • Reflection Ephemeral

      There’s no one left in the Republican Party who cares about the deficit.

      In 2005, a man with impeccable conservative credentials often described as the architect of the 1981 tax cuts, former Reagan & Jack Kemp adviser Bruce Bartlett, wrote a book arguing that maybe Republicans should, like, pay some attention to the deficit or something. He was, of course, excommunicated from conservatism, and folks he’d considered friends for decades simply stopped speaking to him. http://capitalgainsandgames.com/blog/bruce-bartlett/1601/groupthink-right-would-make-stalin-proud

      If you care about fiscal responsibility, you can’t vote for a Republican at any level.

      • LFC

        “If you care about fiscal responsibility, you can’t vote for a Republican at any level.”

        +1

        My first Republican vote was for Ronald Reagan. My last Republican vote was Arlen Specter in 2004. They’ve just run up too much debt to take them seriously on any economic issue anymore.

      • paul_gs

        A bit of a bogus graph in that the continuation of the Bush-era tax cuts is put on an out-of-power President and not on the current President where it belongs.

        • Reflection Ephemeral

          Eh, you can argue whether a “continuation of a policy” is different from a “new policy”.

          But what you can’t argue is that every single elected GOP official would put every other matter concerning the nation on hold in order to extend the Bush fiscal policies. The Republican Party managed to extend those policies because they’ll sacrifice all other goals to do so.

          So no matter how you slice it, it’s deeply silly to want to blame Pres. Obama for failing to magically override the will of every Republican officeholder, as to the fiscal calamity that is the Bush fiscal policies.

  • dante

    Our income inequality hit a high that was unseen previously in the US……. at least since the Great Depression. Could it really be a coincidence that the two greatest financial crises in the past 90 years *both* were predicated by a rise in income inequality?

    • nhthinker


      Over-consumption causes a trade imbalance. It is out of control. Trying to increase consumption of the bottom 50% will make the trade imbalance worse.
      Improving US production of energy to displace foreign oil- including Canadian is a primary mechanism to deal with this sovereign wealth sapper.

  • bamboozer

    As usual Fistula-Green fails to impress and merely recites Republican doctrine.

  • Nanotek

    Noah,

    I disagree. The tremendous gap in income and wealth inequality is a symptom — not a cause. Many in the OWS and working class Americans are aware we’re getting screwed those who have the power to control our laws and regulations.

  • LauraNo

    “They will start to blame the current bad economy explicitly on income inequality.”

    Don’t know where you’ve been, but liberals have _always_ blamed the lousy economy on the income disparity and the unjustifiable, paid-for-by-borrowing tax cuts for the uber wealthy at everyone else’s expense. Really, look it up.

  • JohnMcC

    Hummm…it sure sounds as though our friend Mr K-Green advocates a Repub campaign in 2012 based on proving to middle-income Americans that we in fact did prosper during the Bush 43 years and that therefore the foreclosures that caused the Great Recession was simply our moral failings in not paying our mortgages. After all, his ideology informs him that a rising tide lifts all boats.

    That’s good. I’m a Dem and wish them luck with that.

  • SerenityNow

    I’m soooo tired of the Republican rant on the housing bubble. It was the Repubs who dismantled Glass-Steagall which had kept investment banks from poaching on commercial banking turf which included mortgage lending such that mortgages of dubious quality were sliced and diced and – voila – they became securities of unknowable provenance.

    And, by the way, small S&L’s and regional commercial banks didn’t take anything like the beating in the housing bubble collapse that Wall Street banks did because they knew who they were lending money to and they held onto the mortgages that they wrote. What a concept!

    It never fails to amaze me that on fiscal issues people like Noah cannot find enough praise for those things that promote the greater concentrations of wealth at the very top despite the fact that broader income and wealth distribution has always been recognized as a cornerstone of a healthy economy which in turn supports a healthy democracy. It’s kind of like Conservative Republican orthodoxy on social issues that always seems to come across as the fear that somewhere, some how, someone is having a good time that isn’t hurting anyone else.

    • paul_gs

      It was Democratic President Bill Clinton who signed into law the repealing of Glass-Steagall.

      I know, I know, now you will just change the goalposts and claim Glass-Steagall had nothing to do with the crisis.

      • Traveler

        Paul_bs, you are at it again. Clinton neither submitted or passed it. The POG submitted it and POG controlled House and Senate passed it. But there was bipartisan support, unlike the wing nuts clogging things now.

        Why don’t you shut up unless you have something useful to contribute? You are so lame. Just another example of why your ilk represent the worst of this country. And you’re just a Canadian anyway…not all idiots are here in the US.

  • nhthinker

    “If it was because healthcare costs were consuming all the productivity gains the American worker was making, then that suggests that better controls for healthcare costs could have saved everyone a lot of trouble.”

    Income from labor is now much more impacted by international markets for labor. Unskilled/low skilled labor in the US is competing for world’s resources against skilled labor in other countries. Should the average Americans high school dropouts expect to be able to afford to spend thousands of dollars on going to bars, on gasoline instead of car pooling or air-conditioning?

    There are billions of college educated global workers that want to use more energy than they did a generation ago. The world currently cannot afford to provide every one who wants it, with air-conditioning or a personal car to consume gasoline. Unskilled Americans will someday need to expect to make due with less than the skilled workers in China and India.

  • adamcarralejo

    “… but one immediate question that comes to my mind is why middle class incomes were not rising … I suspect this argument will get more developed as the election season kicks off, especially if the Democrats develop a platform and message that is strongly against income inequality.”

    Great article … Noah is the best writer on this site, I wish he’d write more.

    Anyway, what is the conservative response to this? The democratic response includes higher taxes (to be fair, though, it’s a lot more than just higher taxes on millionaires). That seems off target. But what answer does the right have … less regulation? lower taxes on high earners? less welfare?

    The republican message seems out of touch with today’s times. It’s a message built for the late ’70′s and early ’80′s when inflation and unemployment where the biggest issues but growth, incomes and indebtedness we’re less problematic. It leaves us with a choice of one party that seems to understand the problems, but without answers; and another party that simply doesn’t understand the problems.

  • nhthinker

    The liberal argument might have worked in 1998, but the country has changed…

    • nhthinker

      Seemingly, the allure of socialism and redistribution peaked in 2008.

      • ottovbvs

        The thinkers latest mickey mouse poll. Do you have stock in Disney thinker?

      • nhthinker

        Calling the Gallup polling organization mickey-mouse? I referenced a featured story on Gallup’s Political News today!

        Featured Gallup.com Stories
        Politics News
        Congress Ends 2011 With Record-Low 11% Approval
        December 19, 2011
        Fewer Americans See U.S. Divided Into “Haves,” “Have Nots”

        I guess to someone so out of touch, anything that Gallup chooses to run must be viewed as “mickey mouse”.

        • Sinan

          The nations opinions are shaped by two large groups of people. On the one side you have the reality based group who vote mostly for Democrats but include some independents who seem to have a problem admitting their bias for one side or the other. The independents try to be rational players come election time. The other group are the ones that are force fed right wing nonsense via the radio, TV and punditry class. These are the low information groups whose main contribution to our election cycles is to drag the entire process into the mud while whistling Dixie and Old Glory to the cross burning.

        • Traveler

          thinker:

          This poll was taken after the TP became prominent. The difference is entirely due to this misguided 9% of the electorate taking the Koolaid. It is nothing but another symptom of the 2008 and 2010 elections. But I agree that it is not Mickey Mouse. It accurately reflects the electorate as well Gallup can be. However, we have seen Gallup make boo-boos before. What was the margin of error?

        • nhthinker

          “For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points.”

          http://www.gallup.com/poll/151556/Fewer-Americans-Divided-Haves-Nots.aspx

          I think it may have to do with independents seeing that Europe and larger government is not necessarily better able to handle economic troubles. This happened at the same time as the rise of the TP.

      • Redrabbit

        Clear evidence that a poll can reliably measure public idiocy.

  • ottovbvs

    So what Noah? The Republicans are blaming it on regulations. Both are fantasies. Pot/Kettle?

  • paul_gs

    This graph demonstrates that much of the rise in inequality is only a temporary phenomena:

    • Traveler

      So what does the ordinate represent? Nice try, but this could apples sold in Seattle for all I know (representative of your inability to reason coherently). Please try again, and maybe even come up with a reason for the trends in 2oo8 being so different.

      Sorry, many of us actually enjoy thinking.

      • nhthinker

        A quick copy of the image location (and a 20 second thoughtful scan) gets you to here…
        http://blog.feveriam.com/2011/01/shock-dip-in-uk-gdp/

        It’s growth rate of UK gdp with the intro…
        “Entirely gratitous and meaningless graph inserted here, just as all graphs on GDP tend to be:”

        I have no rational explanation on why paul_gs related the graph to inequality.

    • paul_gs

      Everyone else posted a graph so I thought I’d better too. Mine wasn’t meant to mean anything, but to suggest that one can pull up a graph (study, poll) to “prove” almost anything.

      • nhthinker

        This is typically an audience that loves to blow away snow jobs.
        Admitting you felt compelled to provide one is an interesting conflict in honesty.

        • paul_gs

          This “audience” is overrepresented by shallow left-wingers who repeat whatever fake talking points are circulating amongst their incestuous little crowd of progressives.

          One need only watch the previous night’s episode of Jon Stewart to know precisely what talking points the left will be spouting off about here.

          Lighten up a little nh. A little humor goes a long way for everybody.

        • nhthinker

          The bart simpson picture WAS an attempt at humor.

        • Traveler

          Nice catch thinker, and glad you felt compelled to track down the BS in _bs. His subsequent comment is so puerile as to defy comprehension (of which that coprophage has very little). Dude actually acted sensible for a couple of posts and then reverted to twitching ever since. What is the deal with you guys? Can you at least respond with more than a motor neuron and an axon or two?

          BTW, I am going to bookmark this thread and post it every time Paul gets uppity. Truth will hurt. Thanks for the ammo. Both of you.

          Just to check:
          http://www.frumforum.com/the-coming-liberal-argument/comment-page-1#comment-367927

        • nhthinker

          “What is the deal with you guys? Can you at least respond with more than a motor neuron and an axon or two? ”

          I provide facts, rational arguments and links to support my arguments. I’ve been posting here for years and have not had a single posting retracted based on failed argument.

          I don’t support anyone, left or right, making irrational arguments, especially those couched in false links.

          Many people (left and right) posting here are too intellectually lazy to check anything nor provide decent support for any of the arguments that they make.

        • paul_gs

          Methinks Traveler could develop a sense of humor too.

        • WaStateUrbanGOPer

          Has Frumforum ever had this sort of hot wingnut-on-wingnut action?

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