A Progressive Backlash?

Alan Reynolds
Fri, 01 Jun 2007 00:00:00 -0700
Opinion

It suddenly became clear that Hillary Clinton and her advisors intend to run a negative presidential campaign — not negative about other candidates, but about the U.S. economy.

On May 29, Sen. Clinton launched her "Modern Progressive Vision: Shared Prosperity," which strains to justify "returning high-income tax rates to the 1990s levels." It was full of gloomy rhetoric blaming "globalization" (bargains at Wal-Mart?) for some bizarre allegations about falling U.S. living standards for all but a lucky few.

Clinton said, "Last year, the share of America's national income ... going to the salaries of American workers was the lowest (since 1929)." Huh? The labor share was just 64 percent in 2006, but it was 63.9 percent in 1997. Employee compensation averaged 64.9 percent of national income from 1960 to 2005, 65 percent from 1993 to 2000 and 65.3 percent from 2001 to 2006.
Updated: Thu May 31, 2007

It suddenly became clear that Hillary Clinton and her advisors intend to run a negative presidential campaign — not negative about other candidates, but about the U.S. economy.

On May 29, Sen. Clinton launched her "Modern Progressive Vision: Shared Prosperity," which strains to justify "returning high-income tax rates to the 1990s levels." It was full of gloomy rhetoric blaming "globalization" (bargains at Wal-Mart?) for some bizarre allegations about falling U.S. living standards for all but a lucky few.

Clinton said, "Last year, the share of America's national income ... going to the salaries of American workers was the lowest (since 1929)." Huh? The labor share was just 64 percent in 2006, but it was 63.9 percent in 1997. Employee compensation averaged 64.9 percent of national income from 1960 to 2005, 65 percent from 1993 to 2000 and 65.3 percent from 2001 to 2006.

Clinton even claimed 59 percent of "net corporate revenues" went to profits over the past five years — a number so patently ridiculous that it only served to demonstrate that she is easily confused about numbers.

Three days earlier (coincidentally), the Pew Charitable Trusts released the first of many reports on economic mobility timed (coincidentally) to hit the press between now and the election. The slickly dismal pamphlet — subtitled, "Is the American Dream Alive and Well?" — was written by John Morton of Pew Charitable Trusts and "a team of Brookings Institution scholars," led by Isabel Sawhill. Two conservative think tanks were ostensibly involved, but must have been out to lunch.

The Pew-Brookings report was full of alarming rhetoric, similar to Clinton's, about "the rough edges of capitalism." Some data were the same. Clinton said, "CEOs have seen their pay go from 24 times the typical worker's in 1965 to 262 times the typical worker's in 2005." The Pew-Brookings pamphlet found "figures that are perhaps even more striking. Between 1978 and 2005, CEO pay increased from 35 times to nearly 262 times the average worker's pay."

Those figures from the Economic Policy Institute bear little relationship to typical pay of CEOs or their corporate employees. They instead compare onetime windfalls of just 350 CEOs (exercised stock options) with a narrow measure of production worker wages, which includes part-timers' low wages multiplied by 2,080 hours.

The Pew-Brookings paper claims we currently face "rapidly growing income inequality" because "the Congressional Budget Office (CBO) finds that between 1979 and 2004, the real after-tax income of the poorest one-fifth of Americans rose by 9 percent, that of the richest one-fifth by 69 percent, and that of the top 1 percent by 176 percent."

What happened for several years after 1979 was dominated by horrific inflationary recessions from 1980 to 1982. From 1988 to 2004, by contrast, the CBO says the poorest one-fifth saw their share of after-tax income rise from 2.7 percent to 3.4 percent, while that of the top fifth fell from 59.3 percent to 57 percent and the share of the top 1 percent was unchanged, at 13.4 percent.

On the day of Clinton's speech, Brookings Institution senior fellow Ron Haskins wrote about "The Rise of the Bottom Fifth" in The Washington Post. He noted that from 1991 to 2005, the real earnings among the bottom fifth of families with children increased "by 80 percent, compared with around 50 percent for the highest-income group and around 20 percent for each of the other three groups."

Clinton disregarded gains among the poor but sounded angry at two-earner families earning six figures: "In 2005, all income gains went to the top 10 percent of households (joint returns reporting more than $96,563), while the bottom 90 percent saw their incomes decline, in spite of the fact that worker productivity has increased for six years." What do one year's incomes have to do with productivity over six years?

The claim that 90 percent "saw their incomes decline" came from a New York Times article about a study of the top 10 percent of income tax returns by Thomas Piketty and Emmanuel Saez. Those economists never claimed to have examined incomes of the bottom 90 percent because that cannot possibly be done by looking only at income reported on tax returns. As they acknowledged in The American Economic Review last May: "Our database also suffers from important limitations. In particular, our long-run series are generally con?ned to top income and wealth shares and contain little information about bottom segments of the distribution."

Clinton considers herself "a thoroughly optimistic and modern progressive." Optimistic progressives and liberals find her old-fashioned and grumpy.

The day after Clinton's speech, Washington Post columnist Steven Pearlstein wrote, "To hear it from Democratic leaders and presidential candidates, you'd think the American dream was melting away as quickly as the glacial ice floes in Greenland." He called attention to a Progressive Policy Institute report by Stephen Rose about "The Trouble With Class-Interest Populism."

The class-interest paper from Pew and Brookings asserts that median family income should keep pace with worker productivity, for example, which might make sense if all income came from work and everyone worked. Rose, by contrast, observes that median income includes a growing fraction of seniors and young singles and students. Excluding those under 29 and over 60 lifts median income from about $44,500 to $63,000.

Defining middle class as a real income between $30,000 and $90,000, Rose finds that group did indeed shrink from 47 percent to 37 percent of all households between 1979 and 2004. But that was only because the percentage earning more than $90,000 increased from 29 percent to 38 percent. Rose warns against presidential campaigns based on pitting labor against business or blue-collar against white-collar, because "the group that could reasonably be categorized as having a clear, class-based interest in voting for Democratic policies would comprise less than one-quarter of the population."

Not all Democrats seeking the highest office have yet succumbed to the divisive and hypocritical "Two Americas" theme that quickly made the affluent Sen. Edwards such an implausible candidate. Yet Hillary Clinton just jumped into that trap. Presidential candidates with the highest name recognition have the most to lose by misjudging the electorate.

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Note: This is my last regularly syndicated column, but I certainly do not intend to stop writing. Recent and future work can be found under my bio at cato.org, and several older writings are archived under "policy bot" at heartland.org.