Thursday, March 25

The Blinkered View (Written 11/25/2007)

Alan Greenspan appeared last Wednesday on C-Span’s Book TV to promote a new book, The Age of Turbulence: Adventures in a New World. In an interview conducted by Daniel Yergin, Greenspan touched on a number of topics, including his insouciance regarding America’s mushrooming levels of personal and national indebtedness; but the most interesting and revealing moment came at the end of the hour, when Mr. Yergin brought up the topic of income inequality.

In my experience income inequality has always been a progressive concern, yet here was Alan Greenspan, disciple of Ayn Rand, implacable critic of the New Deal, proponent of “trickle down” economics, expressing his concern, indeed predicting that a system which does not address the issue adequately “cannot stand.”

As Mr. Greenspan noted, the evidence for serious disparities in wealth and income among Americans is overwhelming. According to the Luxembourg Income Study of 26 industrialized nations, the gap between the wealthiest 10% of the population and the poorest 10% is greater in the United States than in any country except Russia. The Economic Policy Institute reveals that the bottom 4/5ths of the American population controls only 17% of the nation’s wealth. And the situation isn’t getting better. Pay for top level executives continues to skyrocket, while that of middle income workers has been stagnant or actually declining since the mid-seventies in spite of steady increases in worker productivity. No other comparable degree of inequality has been seen in the United States since the early 1900s.

And Alan Greenspan’s worried about it! Has the world turned upside down?

No! As I listened further, it became clear that Mr. Greenspan still doesn't give a damn about the poor and middle class. According to his analysis, income disparity is due to America’s dysfunctional educational system, because poorly trained American workers can't compete with highly skilled immigrants. This, says Mr. Greenspan, is the source of the crippling envy that threatens to paralyze our nation's economy. The solution is obvious, though “controversial". We must relax our restrictions on immigration, flooding the market with skilled workers, and driving down wages. Viola: no more income disparity!

The pathology of this viewpoint is breathtaking. Does Mr. Greenspan expect us to believe that a machinist making $30 an hour lies awake at night worrying that his German-born neighbor makes $40 an hour, while the CEO who employs them both takes home a seven figure yearly salary?

Greenspan’s approach suffers has other defects. In the first place it’s cruel and immoral. Secondly, instead of decreasing income disparity it would do the opposite. By depressing wages executives and stockholders would realize a tidy profit, thus increasing income differential. Finally there’s a better way, that has already demonstrated its effectiveness.

Economic conservatives maintain that progressive taxation reduces capital investment, inhibits small businesses, and depresses the economy. Supposedly wealthy plutocrats are easily discouraged, while middle income workers loyally buckle down and make do with less for the common good. In fact, high marginal tax rates ushered in by the New Deal paved the way for national prosperity and a thriving middle class, while the tax cuts for the wealthy imposed by Ronald Reagan and his supply-side successors have led us to our present sorry state.

Mr. Greenspan seems to think that no one has noticed this.