"Higher profits and wages for those at the top were only possible because they could pay workers less and yet have them spend more, borrowing the difference"

That was true of the consumption driven economy of the past decade or two, but we could move back to an economy driven by a better balance between consumption and investment - which would work better for everyone.

I expect that to collapse under its own weight, too. Higher profits and wages for those at the top were only possible because they could pay workers less and yet have them spend more, borrowing the difference. With household debt now at 130% of GDP, that is over. So there won't be as much to tax, even among the affluent, which is why NY state's tax revenues are down 25% from a year earlier.

In fact, had the government not intervened last fall (after having let the market determine that shift in relative wages) the value of all those pieces of paper held by the top 20% asserting the future right to consumer other people's future work (stocks, bonds) might have gone down even more than it has.

As for taxes to benefit the less well off, let's see if we get univeral health care financing. Acid test, big time.

It looks like they are moving to a political compromise: borrowing money younger generations will have to pay back, to prop up a system that ties you to your employer (but not the other way around), while forcing younger people to pay far more than the health care they consume, and limiting the reduction in the number of uninsured.

Larry, you are right that wages for the bottom 80% have been stagnant for 35 years and their incomes have increased only because of increased labor-force participation.

But per capita income has increased steadily for the past 35 years. That is mathematically possible because the top 20% have taken a much larger share of overall income.

The extra money is there and available to spend, but it is in the hands of 20% of the people.

We can make some of that money available to all of us by making the income tax system much more progressive. There would be no problem at all in financing public services if the top 20% paid the income taxes rates of the 1950s - a maximum rate of 90% on incomes of over $1 or $2 million a year in current dollars.

I don't think we can go that far, but we certainly can raise the maximum federal income tax rate and reduce the vastly increased inequality of recent decades.

[I]t’s the second hike in two years, and it has some straphangers considering commuting alternatives.

“Now I know what I'm going to do next week. I'm going to pull out the car,” said Angela Pacheco, 57, of Brooklyn.

Ahh, well that's exactly what we were hoping to accomplish.

(Hopefully the tags worked right.)

Of course a lot of that additional income has gone to the second car, daycare, etc. Perhaps more than 100 percent of it, give the savings rate fell from around 10% to zero before recovering slightly.

Labor force participation has begun to fall. Bottom line, there is going to be less money -- earned and borrowed -- available to spend. And the big builder response is a small house a two hour drive from your job, rather than a big house a two hour drive from your job, according to the WSJ.

wages for the bottom 80% have been falling (general trend, adjusted for the business cycle) for 35 years.

Not sure where you're getting that from. these data indicate that incomes have been rising for all but the lowest quintile (bottom 20%), and even for that group incomes have not been falling so much as stagnant.

http://online.wsj.com/article/SB124562564321835575.html

They see the future as smaller, entry level housing on cheap land. In other words, instead of driving until you qualify for a McMansion, drive until you qualify for a cottage, not that you can't borrow money you can't afford to pay back.

So why not buy or build a cottage or rowhouse in a more central location?

Perhaps because the schools and policing there will be awful, because all the money will be going to the early retirees. The only decent public services at decent tax rates are in growing exurban areas where the number of early retirees remains low relative to the number of taxpayers.

Bottom line, they still assume long drives.

And I had a thought this weekend. In theory multiple car ownership should have raised wages, but increasing the number of competing employers available, but in fact wages for the bottom 80% have been falling (general trend, adjusted for the business cycle) for 35 years.