1. Growth is good. A rising economic tide tends to lift all boats. We should generally not pass up opportunities to create growth, such as through freer trade, because we are concerned about its redistributive effects. Instead, grow first and then redistribute through tax policy and/or improved safety nets.
In coming to his various conclusions, Silver compares how the poor and the rich have fared under various Administrations (and their policies). He makes an interesting point - linking the fates of the different economic classes:
In general, however, the fates of different economic classes are linked. Since 1967, the correlation in the change in year-over-year income between the 10th and the 90th percentiles is .63.
This latter characteristic is something that I think a lot of liberals tend not to have a good appreciation of. There is sometimes a tendency among liberals to see the economy as a zero-sum game, but this is not really the case. When the economy is doing well, everyone tends to do well, unless the President is trying really, really hard (as Reagan did) to steer that growth only toward certain income classes. And when the economy is doing poorly, everyone tends to do poorly. The poor did awfully under George W. Bush, but the wealthy didn't perform all that well either.
This may be a result of the tendency of liberal thinkers focus their attention on the rich-poor gap, usually measured as a ratio. This can certainly tells us something valuable, but if the goal is to look after the economic well-being of the least well-off, it is probably better to look instead at how the least well-off are performing relative to themselves. A reasonable "progressive" economic goal, for instance, would be to maximize the long-run real income achieved at the 10th or 20th percentile. Essentially, this is a slightly bastardized version of the Rawlsian maximin construct.
How you go about achieving that maximization, of course, is the tricky part. I've included the qualification "long-run", because it is almost assuredly not as simple as a mass transfer of wealth achieved through taxation policy. This might make the poor better off in the near-term, but quite possibly not in the long-run if it the tax shock significantly hampered long-term growth.
For my money, the Clintonan idea of "aggressive" pro-growth policies coupled with a relatively high tax rate on the rich is an attractive one. Let the rich make their money and then tax them (and/or improve social welfare programs for the poor). But don't do things that inhibit economic growth because you're afraid of the redistributive effects. A good example is something like free trade. The emerging consensus among both liberal and conservative economists appears to be that while free trade does increase GDP (as has long been believed), it also has some redistributive effects; the "consensus" solution to this is to have free trade coupled with a more robust safety net.
The concept of free trade benefiting all economic classes is one that has been embraced as “gospel” over the past 15-20 years among both Democrats and Republicans; that concept helped with the initial passage of NAFTA in Congress. There remains much to debate about what is meant by “free trade.” (For example, I would argue that free trade is not really free when externalities such as environmental impacts and pollution and inconsistencies in different countries' labor policies are not incorporated into the real prices of products that are made and sold. In that case, costs are passed along to people other than just the consumers – usually the poor and disenfranchised. But I'll set that aside for another discussion.)
I strongly agree with Nate Silver's point that free trade needs to be coupled with a more robust safety net. The working poor disproportionately bear the brunt of downturns in the economy. I am reminded of the compelling Op-Ed piece by Iain Levison in this Sunday's Washington Post's Op-Ed section (February 15, 2009), entitled "The Blow the Working Class Saw Coming," http://www.washingtonpost.com/wp-dyn/content/article/2009/02/13/AR2009021301645.html?nav=hcmoduletmv . Levison's article illustrates the story of just how the working poor are hit hardest and first when economic hard times come along.
Well, I'm off to go back to read more of Nate Silver's analysis, and to focus on his various other points. I highly recommend it!
NOTE: political animal is filling in (such as that is) for Lowell Feld, who is out of town for a few days.
