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Who Hoovers Whom?

By Matthew Yglesias  

"Who Hoovers Whom?"

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Kevin Drum’s sticking to his theory that big finance is stealing our money:

Well then, I have to ask yet again: where is this tsunami of money coming from? If financiers receive a greater fraction of national income than they did in the past, somebody else is getting less. That somebody is almost certainly you and me, whose wages haven’t kept up with economic growth, thus creating a huge and growing pool of extra money for the financiers to hoover up.

I continue to think this model is a mistake. A lot of different things have happened over the past thirty years. One is a tendency toward financial deregulation and skyrocketing high-end inequality, and one is a tendency toward median wage stagnation. The former trend is largely concentrated in Anglophone countries, but the latter exists in Japan, Germany, etc., as well.

This ILO data only covers ten years, but highlights that wage stagnation is a pretty broad trend:

I think what Kevin’s story keeps missing is a plausible causal account of how a tiny number of financiers have been able to hoover up money from the median wage earner. I can tell you a story about how a tiny number of financiers have been able to hoover up money from the executives of rival financial institutions as deregulation has led to consolidation of the industry. I can tell you a story about how a tiny number of financiers have been able to hoover up money from the broad class of rich people in the 80th-99th percentile who own the bulk of the financial assets in the country by swindling them. I can tell you a story about how a tiny number of financiers have been able to hoover up money from the broad class of rich people via the income tax and “bailouts.”

But the median wage earner seems harder to me. Especially because they somehow got to the median German wage earner, but not to the median Chinese wage earner.

Here’s another story. A lot of the median wage earner’s money has been hoovered up by the health care system. If we had single payer health insurance in the United States then increases in per capita health care spending would exhibit themselves as higher taxes. Instead, most people get health care through employers who subsidize their premiums, so increases in per capita health care spending exhibit themselves largely as lower wages. Optimistically, in exchange for all this extra money we’re now getting way better health care. Pessimistically (and, I think, more plausibly) an awful lot of it is getting “hoovered up” to little good end.

The last part of my story is monetary policy. It used to be the case that monetary policy errors were two-sided. Sometimes wages grew too fast (inflation) and sometimes they grew too slowly (recession), but since 1980 we’ve only ever erred in one direction and experienced three labor market recessions and zero outbursts of inflation. In an ideal world, monetary policy never errs and you have neither recessions nor inflation. But if monetary policy errs in an unbalanced direction, how can wage stagnation not result?

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