Robert Shiller: They called him "Mr. Bubble."

[mahatmakanejeeves]

They called him "Mr. Bubble."

In 2000 he said the dot-coms would go bust. Internet entrepreneurs scoffed. In 2005, he said the housing boom would cause a recession. Mortgage lenders laughed.
They called him "Mr. Bubble."
Wouldn't you like to know what Mr. Bubble has to say today?

September/October 2009
by David Leonhardt '94

David Leonhardt '94 is an economics columnist for the New York Times.

....
"Whenever the public endures a crisis, ordinary citizens start to wonder how -- and whether -- our institutions really work," Shiller wrote in the Washington Post last September {2008}, two weeks after Lehman Brothers collapsed and financial markets froze. "We no longer take things for granted. It is only then that real change becomes possible."

Shiller argues that the United States has gone through six major shifts in the way that people think about the economy: during the Revolution, during Andrew Jackson's presidency, during Abraham Lincoln's, at the end of Reconstruction, during the Great Depression, and during Ronald Reagan's presidency. These shifts were often connected to some kind of crisis. When Reagan was elected, the economy was suffering through its second severe downturn in less than a decade. Oil shocks had played a big role in those downturns, but the government deserved some blame, too. In the 1960s and '70s, policy makers overestimated their ability to fine-tune the economy, and their mistakes helped cause stagflation. The Reagan Revolution reasserted the role of the market -- of laissez-faire economics -- in American society.

But it is now clear that the revolution went too far. (True believers insist the problem was that the revolution didn't go far enough, but that's what true believers -- be they on the right or the left -- always insist.) The tax cuts of the past decade did not bring about the nirvana of economic growth that was promised. In fact, average annual growth in the current decade, even before the downturn began in late 2007, has been slower than in any decade since before World War II. And the crisis, as Greenspan himself has said, undercut the notion that individuals left to their own devices will always create a well-functioning economy. In the wake of the crisis, Shiller argues, the country is entering its seventh major shift. "We're going through a seismic change," he said, "and our sense of support for capitalist institutions is not going to be the same."

[KansDem]

1. "...our sense of support for capitalist institutions is not going to be the same"

I wonder what Mr. Leonhardt has to say for the future of capitalism?

There is the "Rising Tide Tax System"--

From the article--
Of all his policy ideas, the broadest is one that he calls the "Rising Tide Tax System." Developed with Len Burman, a Syracuse University economist who spent years in Washington, it is essentially a form of inequality insurance. Under such a system, tax rates would automatically adjust along with levels of income inequality. If the incomes of the middle class and the poor were growing at a faster pace than the incomes of the rich -- as happened during the 1950s and '60s -- tax rates on the rich would fall. But if the incomes of the rich were growing the fastest -- as has happened over most of the last 35 years -- their tax rates would rise. The opposite, in fact, has happened in recent years. The wealthy have received both the largest pretax raises and the largest tax cuts. The middle class and poor have not done nearly so well.

That combination, Shiller worries, has created disaffection. And the disaffection has made it harder for policy makers to take steps, such as removing trade barriers, that would lift the economy and enlarge the nation's economic pie. The inequality tax would have the potential to cure this disaffection. It would allow Washington to promise voters that they would be not be denied a fair share of the nation's economic bounty. If large economic forces caused middle-class incomes to stagnate, tax policy would help out -- not erasing the effect of those forces but at least ameliorating them, Shiller says.

The tax idea connects directly to Shiller's conception of how an economy works. The Rising Tide Tax System is meant to make people feel that the economy is fair, that they can trust the institutions around them, that they can have the confidence to take risks that, in the end, will benefit the larger economy. "I think these are exciting ideas," Shiller says. "But they're not going anywhere."

[Schema Thing]

2. What a powerful idea!

[KansDem]

3. Makes sense, doesn't it?

Adjusting the tax rate according to a class-level's prosperity--of lack thereof.

[BREMPRO]

4. I like it! get it to the house floor!!! n/t

incentives in the right place- that adjust for equality- we MAY just be able to salvage capitalism with this kind of proposal.

sad to see Schiller's point that they are great ideas but politically "they are going nowhere". A good idea has legs- this one has Giraffe legs!