David Leonhardt has yet another solid piece in today's New York Times, taking a look at Hillary Clinton's economic worldview. The bottom line is that despite her centrist reputation, she's not as big a believer in free markets as her husband is. It's worth reading the whole thing, but an especially interesting part is where she explains her view of why income inequality has increased over the past three decades. Leonhardt writes:
[W]hen discussing the causes of the middle-class wage slowdown, she tends to focus not on market-based changes, like technology and trade, but on institutions, like unions and the government. ...
“It’s shocking that there is such a continuing political pressure to lower tax rates on the wealthy, when so much of what we look back on now with nostalgia and pride,” she said, referring to the decades immediately after World War II, “was at a time when those who were well off were paying a significantly higher percentage of their income.”
In this, she sounds quite a bit like Paul Krugman, which no doubt helps explain his apparent fondness for her. But she also sounds quite a bit like some Republicans, who (though their normative assessments of the trend differ) give undue credit to policy changes in explaining why income has grown so fast at the top of the economic spectrum. As the argument goes, the rich are getting richer primarily because they're working harder as a result of tax cuts that let them keep more of their earnings, proving the old supply-side argument right after all. Austan Goolsbee, the University of Chicago professor who's one of Barack Obama's chief economics gurus, took aim at this point of view in his New York Times column yesterday:
[T]he new supply-side movement missed a fundamental shift over the last 30 years--the dramatic, disproportionate rise in the compensation of high-income people. The new supply-siders have confused this shift with the impact of tax cuts. ...
[I]n the four years after top marginal rates were cut in 1981 and 1986, and in the three years after the rate cut of 2003, average real salaries (subtracting inflation) for the top 1 percent of earners grew 18.8 percent, 22.5 percent and 17.4 percent. But for the bottom 90 percent of earners over those periods, the average salary changes were 2.6 percent, minus 0.3 percent and minus 0.1 percent. A supply-sider might see this as evidence of the growth power of cutting top rates.
But the data also show that incomes at the top have been growing rapidly regardless of what happened to tax rates. In the four years after the increase in top marginal rates in 1993, average salaries grew 18.7 percent among the top 1 percent of earners and less than 0.1 percent for the bottom 90 percent.
Seeing the same pattern when taxes rose as when they fell indicates that tax cuts weren’t responsible. It suggests that cuts for high-income taxpayers likely gave windfalls to those whose incomes were already rising sharply because of broader market forces.
On some level, of course, this debate is simply academic: whatever the causes of the growing inequality, the broad policy response is the same--more robust assistance to working-class Americans, paid for by a modest tax increase on the wealthy, which both Clinton and Obama envision. (And it's worth pointing out that, for good reason, neither candidate is proposing the sort of draconian agenda that would be required to return income inequality to where it was in the early postwar era.) But Hillary's tendency to blame income inequality on the vast right-wing conspiracy instead of impersonal, difficult-to-demagogue market forces--combined with her failure to acknowledge that eight years of her husband's presidency did almost nothing to reverse the trend--is nevertheless revealing.