Click on graphs for larger image in new window.
Sometimes it helps to look at larger patterns from an almost biological perspective. Note that economic growth accelerates as the tax burden rises over the past 80 years. We are now in the negative-sum phase in which—following our hypothesis of a broken social contract—the rich classes that control the country manipulate the system (taxes and otherwise) to their advantage. For reference here are the top marginal tax rates over the same period.
Source: Matt Yglesias
And here is Emmanual Saez’s awesome chart of the income distribution.
The forecast is for more bitter fighting over a dwindling pie until growth stalls completely in about five years. That is when the real crisis begins.
In the meanwhile the allocation of economic pain will reveal the usually hidden pecking order of American society: bankers (except some investment bankers, but that was personal) feel no pain, but auto workers do; women and children are some of the first to lose benefits in California; and so on. In this sense President Obama’s time in office resembles the Hurricane Katrina experience, in which so much of the underbelly of American society was exposed.
With his focus on maintaining the status quo, the President does not seem to understand the basic problem. Or perhaps he realizes he is powerless to change it. It would be nice to see the stimulus reconfigured to concentrate on helping people in dire straits with health care and livable workfare to get them through the crisis.
So if you think we’ve seen a long-term bottom in the stock market, you’ve got another thing coming.
Disclaimer: This is research, not investment advice. You invest at your own risk.
The Animal Spirits Page: Income inequality, debt, crisis and depressions (3 June 2009)