Hushbeck – Question 4 Reply 2 – Income Inequality

Question 4
Hushbeck Answer to Question 4
Watts Answer to Question 4
Hushbeck Question 4 Reply 1
Watts Question 4 Reply 1
Watts Question 4 Reply 2
(The numbered questions were posed by Joel Watts to Elgin Hushbeck. See links above.)
1)  I find it interesting that you would describe the rate in poverty from the end of WWII to present as “highly selective blips.”  However the biggest problem your argument faces is that it runs contrary to the facts.  U.S. census data  shows that the percentage of the population in poverty declined from 22.2 percent in 1960 to 15.0 percent in 2011.  In fact the data shows exactly what I claimed. Most of the decline occurred in the early 1960s, and since then the rate has fluctuated between 11-15% range.  As for the 1990 welfare reform, the average rate for the 10 year prior to the law was 13.9 percent while the average rate for the 10 years following the law was 12.2 percent.  So your claims simply do not match the actual data.
As for your claim that “The ‘market based solution’ in the 1990’s created the market based problem in the last decade” again, that is simply false.  As I detail in the last chapter of Preserving Democracy, the current problems stem from two factors: the first was the housing bubble, and the second was the re-imposition of a depression era account rule in Nov 2007, which when combined with the economic down turn resulting from the bursting of the housing bubble devastated the economy until it was hastily repealed in April of 2009, but by then the damage had been done.
Neither of these factors were anything close to a “market based solution.” In fact they were quite the opposite. As I detailed in Preserving Democracy a key driver in the housing bubble was government intervention into the financial markets to pushing lenders to provide less restrictive loan terms. This was combined with quasi government organizations such as Fannie Mae and Freddie Mac which demanded that a large percentage of the loans they underwrote be from high risk groups.  So it was not market based solutions, but government intervention that was behind our current problems.
2) We simply have different understandings of what is happening in Europe.  For decades I have seen those on the left point to Europe as the model of socialism and one that we should follow, while I and other has seen the problems growing and maintained that what Europe was doing could not be sustained over the long term.  Now that Europe is in crisis, it is actually quite funny, in a sad sort of way, to see the problem being blamed on “unrestrained capitalism” as if Europe has secretly been some sort of bastion of capitalism run amuck and is only now coming to is socialist senses.
3) Well you claim that “wealth, like energy, cannot be created”  is a clear difference between us, and frankly from my perspective it reveals a fundamental misunderstanding of how the economy actually works.   Your comment that “Attempts at increasing the amount of wealth leads to inflation” leads me to believe that you are conflating wealth with money.   Wealth is found in the goods and service created in a country.
Increasing wealth is not inflationary.  In fact it is at times deflationary.  For example, it is well known that when Rockefeller entered into the oil business, he brought to it a considerable amount of innovation and reform that produces a lot of wealth.  What is not as well know is that he did this by cutting the cost of kerosene from well beyond the reach of most people down to something that they could afford, thereby vastly improving their lives in the process.
On the other hand, increasing the money supply beyond what can be supported by the amount of goods and services can increase inflation.  This is, I believe, what is so worrisome about our current policies.  The Fed has triple the monetary base in order to pump up the economy, leading to much of the growth in the stock market.  The Fed thinks that as the economy beings to grow that it will be able to manage this before inflation can really kick in.   Perhaps they can. But having lived through the stagflation of the 1970s I have very little faith that the Fed will now be able to do what it has never been able to do in the past.  Frankly, I think it I is a very real question as to whether what we are seeing is the beginning of real economic growth, or the beginning of inflation as the two are very similar.