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Economy killers: Inequality and GOP ignorance
The essay by Krugman and Wells from "The Occupy Handbook" is being serialized in Salon.
Economy killers: Inequality and GOP ignorance
By failing Econ 101, Republican leaders failed the country and repeated the errors that caused the Great Depression
By Paul Krugman and Robin Wells
America emerged from the Great Depression and the Second World War with a much more equal distribution of income than it had in the 1920s; our society became middle-class in a way it hadn’t been before. This new, more equal society persisted for 30 years. But then we began pulling apart, with huge income gains for those with already high incomes. As the Congressional Budget Office has documented, the 1 percent — the group implicitly singled out in the slogan “We are the 99 percent” — saw its real income nearly quadruple between 1979 and 2007, dwarfing the very modest gains of ordinary Americans. Other evidence shows that within the 1 percent, the richest 0.1 percent and the richest 0.01 percent saw even larger gains.
By 2007, America was about as unequal as it had been on the eve of the Great Depression — and sure enough, just after hitting this milestone, we plunged into the worst slump since the Depression. This probably wasn’t a coincidence, although economists are still working on trying to understand the linkages between inequality and vulnerability to economic crisis.
Here, however, we want to focus on a different question: Why has the response to the crisis been so inadequate? Before financial crisis struck, we think it’s fair to say that most economists imagined that even if such a crisis were to happen, there would be a quick and effective policy response. In 2003 Robert Lucas, the Nobel laureate and then-president of the American Economic Association, urged the profession to turn its attention away from recessions to issues of longer-term growth. Why? Because, he declared, the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”
Yet when a real depression arrived — and what we are experiencing is indeed a depression, although not as bad as the Great Depression — policy failed to rise to the occasion. Yes, the banking system was bailed out. But job-creation efforts were grossly inadequate from the start — and far from responding to the predictable failure of the initial stimulus to produce a dramatic turnaround with further action, our political system turned its back on the unemployed. Between bitterly divisive politics that blocked just about every initiative from President Obama, and a bizarre shift of focus away from unemployment to budget deficits despite record-low borrowing costs, we have ended up repeating many of the mistakes that perpetuated the Great Depression.
. . .
http://politics.salon.com/2012/04/15/economy_killers_inequality_and_gop_ignorance/singleton/
By failing Econ 101, Republican leaders failed the country and repeated the errors that caused the Great Depression
By Paul Krugman and Robin Wells
America emerged from the Great Depression and the Second World War with a much more equal distribution of income than it had in the 1920s; our society became middle-class in a way it hadn’t been before. This new, more equal society persisted for 30 years. But then we began pulling apart, with huge income gains for those with already high incomes. As the Congressional Budget Office has documented, the 1 percent — the group implicitly singled out in the slogan “We are the 99 percent” — saw its real income nearly quadruple between 1979 and 2007, dwarfing the very modest gains of ordinary Americans. Other evidence shows that within the 1 percent, the richest 0.1 percent and the richest 0.01 percent saw even larger gains.
By 2007, America was about as unequal as it had been on the eve of the Great Depression — and sure enough, just after hitting this milestone, we plunged into the worst slump since the Depression. This probably wasn’t a coincidence, although economists are still working on trying to understand the linkages between inequality and vulnerability to economic crisis.
Here, however, we want to focus on a different question: Why has the response to the crisis been so inadequate? Before financial crisis struck, we think it’s fair to say that most economists imagined that even if such a crisis were to happen, there would be a quick and effective policy response. In 2003 Robert Lucas, the Nobel laureate and then-president of the American Economic Association, urged the profession to turn its attention away from recessions to issues of longer-term growth. Why? Because, he declared, the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”
Yet when a real depression arrived — and what we are experiencing is indeed a depression, although not as bad as the Great Depression — policy failed to rise to the occasion. Yes, the banking system was bailed out. But job-creation efforts were grossly inadequate from the start — and far from responding to the predictable failure of the initial stimulus to produce a dramatic turnaround with further action, our political system turned its back on the unemployed. Between bitterly divisive politics that blocked just about every initiative from President Obama, and a bizarre shift of focus away from unemployment to budget deficits despite record-low borrowing costs, we have ended up repeating many of the mistakes that perpetuated the Great Depression.
. . .
http://politics.salon.com/2012/04/15/economy_killers_inequality_and_gop_ignorance/singleton/
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