A certain laxity in word choice
By Scott Sumner
Matt Yglesias is normally my favorite progressive blogger, but today I have two bones to pick. The first is perhaps a bit picky, as I object to a single word:
On the other hand, one can make the case that an overall culture of laxity on the part of regulators and impunity on the part of bankers was a major contributing factor to the crisis. In that sense, any tough prosecution for anything helps.
‘Laxity’ is a very strange term to use to describe the mistakes made by regulators. Let’s review what actually happened. Regulators (which includes everyone from low level bureaucrats to Congressional leaders to the President), mostly favored more homeownership. They pushed banks to make more loans, particularly to low-income borrowers. By the way, every time I make this claim I get readers who seem to have forgotten the elementary rules of logic, insisting that it was a myth that regulators caused banks to make lots of bad loans. “Krugman proved that.” Umm, I never claimed they did. Read it again.
So let’s give the Barney Frank’s of the world the benefit of the doubt. None of this pressure from regulators and Congress caused banks to make a single extra subprime loan. What then? Then Yglesias’s comment is still equally misleading, for reasons I was trying to explain before being interrupted by commenters that I was already anticipating in my mind. Here’s the problem. The regulators were clearly favoring stupid policies. They were clearly advocating stupid policies. If the regulators were stupid, one would not ordinarily describe their failure as “laxity.” If they had tried even harder to enact these foolish policies would we have avoided the crisis? Clearly not. But of course if Yglesias had replaced the word ‘laxity’ with ‘stupidity’ then it would have been harder to claim that more regulation in the future is the solution. It sort of goes against common sense to give more power to the people whose views (in retrospect) were the most stupid of all.
Yglesias also has a post criticizing Scott Winship, whose research always seems very sensible and high quality to me:
And then something enormously predictable happened. Any time a depiction of growing inequality in the United States becomes popular, people who believe that increased inequality isn’t bad, even if it’s real, start arguing that it isn’t real either. Scott Winship is one of the brightest lights of that school of thought, so he presented a long series of quibbles with both the Saez/Piketty data and Tcherneva’s presentation of it which he framed as a debunking of their claims.
But look past the framing and you’ll see that even Winship himself agrees that “income inequality is at staggering levels in the US, and that income concentration at the top has probably risen.”
Yglesias also seems to recognize Winship’s expertise—Paul Krugman would never put “brightest lights” in the same sentence with a conservative economist. Maybe “dim bulb.” But the rest of the comment is perplexing. Who are these mysterious economists who deny that inequality is increasing? Fortunately Yglesias provides a link. Here is the first paragraph of the post he links to:
While income inequality has been a growing subject of public discussion and most authorities take it for granted at this point that incomes in the United States have grown very unequal, there is some dispute about this. Richard Burkhauser, a Cornell University economist, and Scott Winship, a policy analyst at the Manhattan Institute, have been the leading proponents of the view that the new conventional wisdom overstates the increase in inequality.
Now I feel dizzy. Yglesias has told us that Winship is not one of those stupid right-wingers (like me) who deny that “inequality” is increasing. And the link confirms that. But the link was supposed to tell us about the people who do deny the increase in inequality.
Here’s what I believe about “inequality.” Income inequality has increased greatly since the 1960s. But income inequality doesn’t matter, consumption inequality matters. The consumption of the poor has risen faster than the consumption of the middle class. The consumption of the rich has risen faster than the consumption of the middle class. Overall, not much change in “inequality.” And I care more about the poor than the rich.
Yglesias once understood the importance of consumption; indeed he used to favor a tax regime that would replace taxes on capital income with a progressive consumption tax. He later seemed to move away from this view for slightly defensible reasons that I disagree with. But he surely must understand that an “income” aggregate that lumps together wage and capital income is nonsense, like adding watermelons and blueberries and calling it “number of fruits.” A dollar of capital income is in no way comparable to a dollar of wage income. Add them together and you get meaningless (income) numbers. Thus I can’t help thinking that the following paragraph (criticizing Winship for looking at wage and salary inequality) is pandering to the prejudices of ignorant progressives who read Vox. That’s not what Vox was supposed to be about. (And in fairness they often do a good job.)
Winship suggests that the above chart would undermine the story of growing inequality, while also offering a more accurate picture. This chart excludes capital gains income entirely, and also only examines tax units with taxable income — i.e. the jobless don’t count. And it is true that if you ignore the economy’s tilt in favor of owners and against workers, and also ignore 15 years of persistent labor market weakness, then the overall economic picture looks a lot brighter. Other than that, Mrs. Lincoln, how was the play?
Yes, and other than those posts where Yglesias abandons his neoliberal progressivism and engages in populist progressivism, I always enjoy his posts!