I’m never going to win a Nobel Prize. Maybe in literature. I don’t know why Joseph Stiglitz’s new Vanity Fair piece on inequality is so off-base. But it is. And it’s incredibly frustrating (1) to see someone so intelligent be thwarted by ideology and (2) to watch as his views are propagated on the basis of his name recognition.

What’s a lonely uninvited-to-Davos blogger to do? Blog. Herewith, my fact check of the VF article. Stiglitz writes

The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent.

Stiglitz doesn’t cite any of his figures (possibly a limitation of the outlet), but the Piketty & Saez estimate of the top one percent’s income share in the most recent year (2008) was 18 percent, which is just a hair closer to “nearly a quarter” than it is to “just over a tenth”. Their data says that share was 9 percent in 1985, but that should be adjusted upwards to 13 percent. Similarly, CBO says the top one percent’s share was 17 percent in 2007 for after-tax income, up from 11 percent in 1989. Saez’s estimate of the top one percent’s share of wealth is 21 percent for 2000, 21 percent for 1990, and 22 percent for 1985. Edward Wolff’s is 35 percent for 2007, up from 34 in 1983 (which I doubt is statistically different from 35 in this case). The top appears to have experienced income and wealth losses from 2007 to 2009 while the bottom experienced gains. Taken together, the top one percent’s income share rose from 11-13 percent twenty-five years ago to 17-18 percent according to the most recent data. The top one percent’s wealth share basically hasn’t risen.

Tyler Cowen, of whom I’m generally a big fan, summarizes an interesting post by Michael Mandel on recent productivity growth (the lack thereof). But he ends by trumpeting Hamilton Project analyses claiming to show that men’s earnings declined by 28 percent between 1969 and 2009. This claim, like the Mandel analyses, reinforces Cowen’s argument that we are in a Great Stagnation, but it’s not true! Stop this meme!

I’ve not had much time to blog recently, so I submitted a brief critique in the comments to the Leonhardt post that introduced the world to this unfortunate study (co-authored, unfortunately, by a fellow classmate of mine from Harvard’s inequality program) and in the comments to the Hamilton post. Here’s the basic problem: the analyses assign all nonworking men annual earnings of $0, and since labor force participation among men has declined, the result is a big drop in median earnings over time. But a lot of that decline in labor force participation is attributable to earlier retirement (they include men as old as 64), later and longer school enrollment (they include men as young as 25), rising “disability” rates (which do not correspond in any obvious way with changes in health or job demands but which do correspond with increasing generosity in disability benefits), and other factors having nothing to do with the strength of labor markets.

What would it mean for theories of U.S. income inequality growth if the U.S experience has been similar to that everywhere else?

Yet again and again [economists and other researchers not named Hacker or Pierson] have found themselves at dead ends or have missed crucial evidence. After countless arrests and interrogations, the demise of broad-based prosperity remains a frustratingly open case, unresolved even as the list of victims grows longer.

All this, we are convinced, is because a crucial suspect has largely escaped careful scrutiny: American politics.

– Jacob Hacker and Paul Pierson, Winner Take All Politics

Here’s a chart showing trends in the share of income received by the top one percent for all the modern industrialized nations for which data is available going back to the early twentieth century:

On the eve of the Iowa caucus in late 2007, Mark Schmitt, editor of The American Prospect, wrote an influential essay titled, “The ‘Theory of Change’ Primary”. The thesis of the piece was that Barack Obama’s frequent paeans to bipartisanship were not to be understood as the naivety of a political Pollyanna who would be rudely awakened upon taking the reins of power. Rather, Schmitt argued, appeals to bipartisanship were a tactic that President Obama would use to make Republicans an offer they couldn’t refuse: join with your colleagues across the aisle to enact the progressive policies the country demands, or reject bipartisanship and bear the wrath of voters in 2010.

Obama’s theory of change—as interpreted by Schmitt—has not worked out so well. Half the country supports repealing the healthcare reform bill, half say Democrats are too liberal, and half think that “the government is trying to do too many things that should be left to individuals and businesses”. While the lackluster economy clearly played a major role in ushering in the sweeping gains made by the GOP on Tuesday, progressives need to recognize that Democratic losses were not simply due to bad luck. Progressives overreached, which may or may not have been worth yesterday’s shellacking but which certainly calls for a change in strategy over the next two years. By taking seriously the theory-of-change strategy and recognizing that the 50-50 Nation continues to govern national politics, progressives can come back in 2012.

The night that President Obama won the presidency, I was distracted by a looming deadline for New Republic piece I was already writing warning the left not to misinterpret the election results. Democratic Congressional victories were primarily the result of voters continuing to grow sour on the way Republicans ran the House and Senate. Obama’s victory owed its magnitude to the financial crisis and McCain’s response to it. Essentially, I warned that the 50-50 Nation was alive and well and that moving too aggressively could backfire.

Mike Konczal returned from vacation and promptly put up a post criticizing my take-down of Edward Luce’s horrible Financial Times piece on “the crisis of the middle class”. It’s become apparent to me over the past few years that I’ve been in D.C. that you can’t refute a specific empirical question about the situation of the poor or middle class (e.g., is it in crisis? as in much worse off than in the past?) without being attacked on much broader grounds than you staked out and being called an opponent of these groups or an insensitive jerk. I actually don’t disagree with much that Mike writes “against” my “views”.

What I do disagree with is the contention that the middle class is in crisis. And I think that it’s bad to believe (and assert for mass audiences) that that’s true because it hurts consumer sentiment, prolonging high unemployment, and diverts attention from the truly disadvantaged who really are in crisis. Mike can say that that pits me against the middle class (his post was titled, “Scott Winship versus the Middle Class”), but then let me ask Mike and others who would disagree with me a simple question: Why do you think Americans are deluded about their economic conditions, since in June, 7 in 10 American adults said their “current household financial situation” is better than “most” Americans’ (Q.25, disclosure: the poll was commissioned by my old employer)? Why are you against the middle class?

Kevin Drum notes my last post and then wonders, “What I’m more curious about is what this looked like in the 50s, 60s, and 70s. Was optimism about our kids’ futures substantially higher then?”

Taken together, there is very little evidence that a supposed stagnation in living standards is reflected in Americans’ concerns about how their children will do. The survey patterns show that parental optimism follows a cyclical pattern, generally is more prevalent than pessimism, and did not decline over time.

Everyone’s approvingly linking to this Edward Luce piece on “the crisis of middle-class America”. I want to set myself on fire.

Seriously, it’s discouraging to see so many people who should know better (because they’ve argued these points with me before) promoting this article. I can’t think of another piece in the doomsday genre—and there are many—that gets it so consistently wrong. I’ll stipulate that none of the criticisms below are intended to minimize the struggles that many people are facing. But it’s important to get this stuff right.

I keep seeing that chart that shows how employment declines in the current recession are so much worse than in past ones. You know, this one:

On many dimensions, of course, the current recession is much worse, but this chart has always seemed funny to me. And after reading Paul Krugman mock the idea that the recessions of the 1970s and 1980s were at all comparable, I decided to make my own damn chart.

When it comes to economic conditions, I’m generally a glass-three-quarters-full kind of guy. Take unemployment. Quick—what was the risk in 2008 that an American worker would experience at least one bout of unemployment? Chances are you thought that that risk was higher than one in eight.* But figures from government surveys indeed suggest that thirteen out of fifteen workers (or would-be workers) had not a single day unemployed during the first year of the “Great Recession”.** (Incidentally, the recessions of the mid-1970s and the early 1980s were also called the “Great Recession” by some commentators.)

The 2009 data won’t be out until later in the year, but if last year ends up comparable to the depths of the early 1980s recession, then the average worker will “only” have had a seven in nine chance of avoiding unemployment.*** But these figures overstate economic risk because some unemployment is voluntary and much of it is brief. According to the Congressional Budget Office, the chance that a worker experienced an unemployment spell lasting more than two weeks during the three years from 2001 to 2003 was just one in thirteen—a period covering the last recession.

Mike Konczal’s inequality post as a guest blogger for Ezra is getting a bit of attention in the blogosphere. Konczal jumps off of an interesting post by Jamelle Bouie to argue that contrary to those who argue that “inequality isn’t so bad,” the unhealthy nature of the cheaper food that is purchased by the poor negates the fact that the poor face a lower inflation rate. Since he suggests I (and Will Wilkinson) think that “inequality isn’t so bad,” I wanted to correct a misconception that Konczal has about the argument of economist Christian Broda that he is responding to. Broda’s actual argument really doesn’t have anything to do with how healthy the things purchased by the poor are.

James Kwak, coauthor of the new financial crisis book 13 Bankers, recently sought to explain his thesis “in 4 pictures.” And impressive pictures they are. But I’ve been particularly struck by one of them — this chart, from a paper by economists Thomas Philippon and Ariell Reshef, showing the close correspondence between deregulation trends on the one hand and the ratio of financial sector wages to private sector wages on the other. My reaction to the chart was essentially, Huh. Those trend lines look like the basic income inequality trend line.

Ezra Klein links to a Slate article by Ben Eidelson that, I think, is quietly devastating to the idea that the Senate filibuster has somehow destroyed the democratic process. Eidelson shows that from 1991 to 2008, in the typical successful filibuster, the senators behind the filibuster (i.e., opposing the cloture motion) represented states comprising 46 percent of the U.S. population. If filibustering Senators represented 51 percent of the population, then we would conclude that the typical successful filibuster was supported by senators representing a majority of Americans. In that case, at least by small-r republican principles, the filibuster would protect the will of the majority.

Everyone should read Matt Yglesias’s post,”How Close Were We, Really?“ which makes a point that I’ve been mulling. The fact that health care reform blew up so quickly after the Brown win implies that whatever consensus had been achieved between the Senate and House, it was significantly incomplete, weak, or both. House liberals apparently were not prepared to pass anything coming out of conference that didn’t reverse the problems they have with the Senate bill. But it’s unclear whether moderate senators or representatives would have stayed on board in that event. If the last week shows nothing else it reveals that a whole lot of members of Congress were decidedly un-excited about supporting anything resembling either chamber’s bill.

Last week, I spent some time looking at the living standards of the middle class, showing that they have improved notably over time and giving evidence that they are better than or comparable to middle-class lifestyles in other industrialized nations. I will be returning to this issue in a later post in order to address the “two-income trap” argument of Elizabeth Warren, which was raised by Reihan Salam and by Rortybomb.

For now though, I want to talk about the living standards of the poor. It’s important to make the distinction between trends (which I’ll discuss today) and absolute levels of material well-being (which I’ll discuss in a later post) because things can have improved a lot at the same time that they are still not all that great.

I spent a chunk of time on the train to New York yesterday reading through bloggers’ reactions to Democrats’ reactions to the Brown victory. And I’m confused.

irst, an awful lot of liberal bloggers seem all too eager to advance a pernicious stereotype about the Democratic Party — that it is feckless, weak, wimpy, cowardly, unprincipled, etc. Look, it’s not that every Democrat was scared away from health care reform by the Brown win. As far as we know, very few were.

There will be a mountain of analysis regarding the Brown victory in Massachusetts last night and what it means for health care reform. But what is striking to me this morning, skimming my RSS feeds, is the same thing I have found striking throughout the past year — how willfully ignorant liberal advocates of health care reform continue to be about public opinion on the Senate- and House-passed versions of health care reform.

There’s no need for extended analysis of the polling to make my point. Start with the basic favor/oppose trend for health care reform:

I am minimally qualified to comment on the crisis in Haiti, but one of Talking Points Memo‘s readers has what sounds to me like an important perspective on American involvement in reconstructing the country over the coming years (not months). Since Haiti is in our backyard, the reader says, we will have to assume nation-building efforts on the scale of Iraq or Afghanistan if Haiti is not to devolve into chaos. More after the jump…

I will be posting soon on the living standards of the poor, but I first wanted to take some time to respond to Mike Konczal of Rortybomb. Mike argues that incomes have stagnated since 1999, which coincides with a dramatic rise in consumer borrowing. Kevin Drum picks up his post and runs with it. Let me start out by saying that I wasn’t so much objecting to Mike’s (or more specifically, Raghuram Rajan’s) hypothesis as I was objecting to general claims that wages have stagnated.

But Mike’s analysis has some problems.

My last post tackled inequality trends in the U.S. and how progressives ought to think about them. Now I want to look at middle-class living standards.

In the course of basically agreeing with Dalton Conley that progressives should be more concerned with poverty than inequality, Kevin Drum argues that what got lost from the Conley analysis is the stagnation of the middle class (“sluggish middle class wages in a country that’s been growing energetically for decades”). And yesterday he endorsed the views of economist Raghuram Rajan, who blames the financial crisis on “the purchasing power of many middle-class households lagging behind the cost of living.”