Chamath’s Worst Take Ever

All In Ep.27

March 27, 2021

Was 1979 a good year?

• A severe recession began, leading to -0.3% GDP growth in 1980.
• “Stagflation” and “Misery Index” became household words.
• Unemployment rate = 6%, growing to 7.2% in 1980.
• Inflation rate = 13.3%
• Prime rate (30-year mortgage) = 11.2% (good luck buying a house)
• Long lines at the gas pump. (good luck driving a car)
• Jimmy Carter declares a national “crisis in confidence” (July 15, 1979), soon to become a 1-term president.

So why does the Gini Index say it was a great year?

https://www.youtube.com/watch?v=okHGCz6xxiw

It’s easier to make everyone equally poor than equally rich.

​

“So long as the gap is smaller, they would rather have the poor poorer.”

​

-- Margaret Thatcher on Socialism, Last Speech to Parliament, 1990

When else was the Gini Index plummeting?

• The 1930’s! Great Depression did a great job creating relative equality by making everyone poor.

What should we look at?

1. Economic Growth
2. Real Wage Growth
3. Poverty
4. Concentrations of Power

​

1982-2000: The Reagan-Clinton Boom

• Annual GDP Growth averaged almost 4%, compared to the usual 2% - 2.5%.
• This is why Reagan and Clinton left office with gigantic approval numbers despite scandals.

What started the boom?

• Reagan cut the top marginal income tax rate from 70% to 50% in 1981.
• Paul Volcker broke inflation, ushering in decades of declining interest rates.

Clinton continued the boom as a “New Democrat”

• Raised top marginal income tax rate from 31% to 39.6%

BUT

• “Lowest federal income tax burden in 35 years” for typical American family. Earned Income Tax Credit + $500 child tax credit.
• “The era of big government is over” (State of the Union 1996)
• “100,000 more cops on the beat” (Crime Bill, 1994)
• “The end of welfare as we know it.” (Welfare Reform Act, 1996)
• “Lowest government spending in 3 decades.” Reduced federal spending from 22.2% of economy to 18.5%. (ClintonWH archives.gov)
• Budget Surpluses from 1998-2000; paid down debt.
• Tech Boom + Peace Dividend + Divided Government. “Gridlock” not so bad!

But what about the average worker? Look at wage growth.

“Reagan and Clinton have the best records and the two Bushes have the worst. Obama falls somewhere in the middle.”

-- Rob Shapiro, Brookings Institution

​

Brookings tracked the incomes of Americans as they aged over 35 years (“age cohort analysis”). Key findings:

• “Through the 1980s and 1990s, households of virtually every type experienced large, steady income gains, whether they were headed by men or women, by blacks, whites or Hispanics, or by people with high school diplomas or college degrees.”
• “This broad income progress stopped around the turn of this century: From 2002 to 2013, the incomes of most households stagnated or declined even as they aged through nine years of expansion and two years of recession.”
• “Income inequality was increasing in the 1980s and 1990s, but it didn’t matter because everyone’s incomes were growing fast.”
• Income inequality becomes more pressing when wages stagnate.

What could have happened around 2000-2001 to halt wage growth for the average worker?

• In 2000, Clinton pushes Congress to approve the U.S.-China Trade Agreement and China's accession to the WTO.
• "Economically, this agreement is the equivalent of a one-way street. It requires China to open its markets… to both our products and services in unprecedented new ways.”
• “For the first time, our companies will be able to sell and distribute products in China made by workers here in America without being forced to relocate manufacturing to China... We’ll be able to export products without exporting jobs.”
• In 2001, Bush gives China “Permanent Normal Trade Relations” (PNTR), permanently granting access to US markets on MFN terms.

What about Poverty? Gini doesn’t fully account for government transfers.

“Only about 2% of the population — not 13.5% — live in poverty. Government annually takes more than $1 trillion from above-average earners and gives it to low earners so that all except a small fraction receive middle-income status. As a result, income inequality in America is not significantly different from that of other advanced nations.” - Cato

Why do the top 0.1% keep getting richer?

• Technology improves living standards for everyone, but it also drives outsized wealth for the creators of the machines.
• Forcing American labor to compete with $2/day foreign labor decimated the non-college middle class.

So what do we do about it?

1. Bust up undue concentrations of power.
2. Spread the opportunity of the New Economy to everyone (eg school choice, Code.org)
3. Re-shore strategically critical industries (eg pharmaceutical & PPE manufacturing).

10 Factors That Cause Economic Prosperity (Martin Anderson)

1. Peace
2. Spread of Capitalism
3. Easy Taxes
4. Computer Revolution
5. Control of Government Spending
6. Deregulation
7. Stable Monetary Policy
8. Steady Economic Policy
9. Growing U.S. Capital Base
10. Superiority of U.S. Economy

• Reagan and Clinton had 10/10
• How many do we have today?

​