Uh, no. This has been another edition of simple answers to simple questions. From the Congressional Budget Office:
It’s good to be the king. A barely rising tide rockets yachts into the stratosphere. That dark blue bottom line? That’s most of us – if you’re that light blue top line you don’t read our stuff here.
– By Kevin Drum | Tue May 19, 2009 9:26 AM PST
…This is a kissing cousin to the question everyone is raising these days about financial innovation. It goes like this: the basic benefit of all the financial innovation we’ve seen over the past few decades has been to make credit more easily available, and that clearly had something to do with the credit boom and subsequent bust. This in turn begs the obvious question: was it really a good idea to make credit so easily available? If the answer is no – if the only result was to mask stagnant wages and produce a fake consumption boom – then maybe all that innovation wasn’t such a hot idea in the first place.
This is rapidly becoming conventional wisdom, and Matt’s point deserves more attention as part of it. For good or ill, the modern economy is driven by middle-class consumption. If middle class wages are rising, everything is fine. They’ll consume more, debt will stay tolerable, and rich people will benefit from the growing economy. But if middle class wages are stagnant, then vast pools of money are increasingly directed toward the rich, who have a limited ability to spend it. So they end up loaning it back to the middle class, collecting economic rents along the way, and the middle class laps it up, figuring that their wage stagnation is just temporary and they’ll eventually pay all the money back…
Too bad that years of underfunding and budget cuts have devastated public education and the peasants can’t read graphs…