...The Romney campaign, however, has defended inequality or brushed it
aside. To do so, it has employed a handful of economic myths. Here are a
few of the most important:
(1) America is a land of opportunity.
While rags-to-riches stories still grip our imagination, the fact of
the matter is that the life chances of a young American are more
dependent on the income and wealth of his parents than in any of the
other advanced countries for which there is data. There is less upward
mobility — and less downward mobility from the top — even than
in Europe, and we’re not just talking about Scandinavia.
(2) Trickle-down economics works (a k a “a rising tide lifts all boats”).
This idea suggests that further enriching the wealthy will make us all
better off. America’s recent economic history shows the patent falsehood
of this notion. The top has done very well. But median American incomes
are lower than they were a decade and a half ago. Various groups — men
and those without a college education — have fared even worse. Median
income of a full-time male worker, for instance, is lower than it was
four decades ago.
(3) The rich are the “job creators,” so giving them more money leads to more and better jobs. This
is really a subset of Myth 2. But Romney’s own private sector history
gives it the lie. As we all know from the discussion of Bain Capital and
other equity firms, many made their money not by creating jobs in
America but by “restructuring,” “downsizing” and moving jobs abroad,
often using debt to bleed the companies of money needed for investment,
and using the money to enrich themselves. But more generally, the rich
are not the source of transformative innovations. Many, if not most of
the crucial innovations in recent decades, from medicine to the
Internet, have been based in large measure on government-financed
research and development. The rich take their money where the returns
are highest, and right now many see those high returns in emerging
markets. It’s not a surprise that Romney’s trust fund invested in China,
but it’s hard to see how giving the rich more money — through more
latitude to escape taxation, either through low taxes in the United
States or Cayman Islands hide-aways — leads to a stronger American
economy.
(4) The cost of reducing inequality is so great that,
as much as idealists would like to do so, we would be killing the goose
that lays the golden egg. In fact, the engine of our economic
growth is the middle class. Inequality weakens aggregate demand, because
those at the middle and bottom have to spend all or almost all of what
that they get, while those at the top don’t. The concentration of wealth
in recent decades led to bubbles and instability, as the Fed tried to
offset the effects of weak demand arising from our inequality by low
interest rates and lax regulation. The irony is that the tax cuts for
capital gains and dividends that were supposed to spur investment by the
wealthy alleged job creators didn’t do so, even with record low
interest rates: private sector job creation under Bush was
dismal. Mainstream economic institutions like the International Monetary
Fund now recognize the connection between inequality and a weak
economy. To argue the contrary is a self-serving idea being promoted by
the very wealthy.
(5) Markets are self-regulating and efficient, and any governmental interference with markets is a mistake. The
2008 crisis should have cured everyone of this fallacy, but anyone with
a sense of history would realize that capitalism has been plagued with
booms and busts since its origin. The only period in our history in
which financial markets did not suffer from excesses was the period
after the Great Depression, in which we put in place strong regulations
that worked. It’s worth noting that we grew much faster, and more
stably, in the decades after World War II than in the period after 1980,
when we started stripping away the regulations. And in the former
period we grew together, in contrast to the latter, when we grew apart...
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