Calvin Coolidge on prosperity and Galbraith on distribution of income

Galbraith wrote:
On December 4, 1928, President Coolidge sent his last message on the state of the Union to the reconvening Congress. Even the most melancholy congressman must have found reassurance in his words. "No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding..."

Galbraith goes on:
There was much good about the world of which Coolidge spoke. True, as liberal misanthropes have insisted, the rich were getting richer much faster than the poor were getting less poor.


Gentlemutt:
My view is that the Panic of 2008 was broadly a function of the gradual triumph, and then unquestioned acceptance, of all things "free-market" in the sixteen years of the Clinton-Bush era, and not merely some simplistic result of the mindless mendacity and cronyism for which George Bush II's regime will sadly long be known (quite unfairly to the many people who did their best to serve it well). It took a loooong goodtime during the 1990's and 2000's to bring us to the sorry state of affairs we see in late 2008, just as many things were good and improving in American life in Cal Coolidge's era.

It matters not that Coolidge was a Republican and Clinton a Democrate; Coolidge's farewell speech could have been Clinton's. Remember, we're talking about rhymes here, not repetition. The social dry rot of accelerating disparity in incomes was common to both regimes.

One question, with a long preface, comes to mind for those who feel that income distribution should be decided purely by 'the free markets.' When we speak about the distribution of prices, say in the stock or bond markets, we talk about the rough bell curve those distributions typically take, and the wider the disparity between high and low prices the greater the stated 'volatility.' Large and growing (ie, excessive) volatility in stock or bond prices seems to be generally accepted as a bad thing. At least, it is true that in recent months heart-stopping volatility created so much uncertainty as to paralyze many markets, especially that for credit. That is why Hank Paulson got down on his knees in front of Nancy Pelosi recently in September, 2008.

Here is the Question: If the labor market is, as ideologues like former senator Phil Gramm insist, just another market like that for stocks, bonds, or Credit Default Swaps, why is the equivalent of large and growing volatility in labor markets somehow not a bad thing? In other words, forget about whether there is a moral element to your stance on what constitutes reasonable distribution of income; I say this to skip such arguments and proceed straight to the pragmatic issue at hand. Suppose instead we just plain seek to avoid problems in the labor market, and the cascade of problems that would come from problems in the labor market, like we now belatedly realize we want to avoid stoppages in the credit markets. Unfortunately our leadership seems to have been blind to credit market problems until it was obvious to all. Must the dangerous consequences of real problems in the labor market be similarly obvious to all before we can agree to try to fix them?

In my view there are two elements to income: a real component that corresponds to what we can actually do with our income, and a sentiment component that is driven by where we think our income stands relative to that of other people. The greater and more evident the dispersion of real incomes the greater also the impact of sentiment on our perception of our income. And the slope of volatile social friction regarding fair distribution of income may prove to be as slippery as the slope down which the credit and stock markets just fell --- and a lot harder to climb back up. So, even if you reject all arguments about fairness issues in income distribution (which usually means you perceive yourself a winner in the income game or a friend of the winners), why would you want to chance losing so much of what you have gained? Why not agree to actively moderate income distributions for the sake of keeping alive the very game you feel you are winning?

Liberal misanthrope, indeed.