Against conventional wisdom

Posted: 10 May 2012 in Uncategorized
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Here are a few things to keep in mind while I take a brief hiatus. . .

1. Notwithstanding the conventional wisdom, Social Security is not going broke. In fact, last year it ran a surplus and, as David Cay Johnston argues, the growth of that surplus has had two major negative effects:

One effect was to finance tax cuts for those at the top, whose highest tax rate fell during the Reagan years from 70 percent to 28 percent, and for corporations, whose rate fell from 50 percent of profits to 35 percent. Those with less subsidized those with more.

The other effect was a huge increase in consumer debt, as Americans saddled with higher Social Security taxes took out loans to cover other needs. Stagnant wages played a role, but the $2.7 trillion Social Security surplus is also a factor in a $1.5 trillion increase in consumer debt since 1984.

2. And while the conventional wisdom is that art fairs (like Frieze New York) have helped to develop a wider market for artists, all they’ve done is reinforce the power of art galleries in branding a few top artists and selling their work to top-name, wealthy collectors. As Felix Salmon explains, what would be good for the other artists would be to allow them to apply for space just as galleries do.

That would be good for artists, and good for collectors. If the fairs don’t let it happen, then they clearly exist to sell collectors to galleries, rather than to sell art to collectors. Remember that, next time you go to one of these things: you might think that the art is the product being sold. But, in fact, it’s you.

3. Finally, while the conventional wisdom is that inequality played no significant role in causing the Global Financial Crisis, the problem of inequality is simply too big to be ignored. But, unfortunately, Till van Treeck demonstrates that, for mainstream economists, the only aspect of inequality that matters concerns keep-up-with-the-Joneses consumption and unwarranted government intervention into the housing market, of the sort that Raghuram Rajan has been arguing of late.

Rajan argues that many lower- and middle-class consumers in the United States have reacted to the stagnation of their real incomes since the early 1980s by reducing saving and increasing debt. This has temporarily kept private consumption and thus aggregate demand and employment high, but also contributed to the creation of the credit bubble which eventually burst.

What we’re seeing, then, is the birth of a new conventional wisdom that, once again, pins the blame on the victims of the crisis.

Fortunately, it looks like the conventional wisdom, that the victims of the crisis should continue to pay most of the costs of getting out of the Second Great Depression, is beginning to be called into question in Greece, France, and elsewhere. Let’s see if that movement against the conventional wisdom takes hold and spreads in the weeks and months ahead.

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