The Congressional Budget Office is out with a timely new report on income inequality, which you can find here. Nickel version: The rich are getting richer, and the rest of us are just kind of drifting along.

The main summary chart is the one on the right. Since 1979, adjusted for inflation, incomes of the broad middle class (solid blue line labeled "21st to 80th percentiles") have increased about 40 percent, which comes to a sluggish 1 percent per year. During the same period, the incomes of the richest 1 percent have increased about 280 percent, or 7 percent per year. This is a pretty familiar chart by now, but one thing to note is that the incomes of the rich are pretty volatile: They drop a lot during recessions, but they also bounce back pretty quickly and regain their high growth rates as soon as the recession is over. This chart only goes through 2007, but the same dynamic has been at work in the aftermath of the Great Recession: a steep drop followed by an equally steep recovery.

Another set of charts is below. These are a little less familiar and need a bit of explanation. They show Gini inequality coefficients for different kinds of incomes, and the more distorted the chart the higher the inequality.

The top left chart shows the inequality of labor income in 1979 (light blue) and 2007 (dark blue). As you can see, it's moderately unequal, and the level of inequality hasn't changed a lot over the years. Likewise, the bottom right chart shows the inequality of capital gains income. This is extremely unequal, but again, the level of inequality hasn't changed too much. Both the light blue and dark blue lines are pretty close to each other.

The other two charts show business income and capital income, and they're quite different. Both show a fairly heavy amount of inequality, and, more interestingly, they show that the level of inequality has widened dramatically over the past three decades. Business income, which means income going to owners of private businesses, has grown much more concentrated, probably due to the growth of high incomes among privately owned professional firms (law, medicine, and finance). And capital income, which is largely dividends and rental income, has become far more concentrated as well. I'm not quite sure what story this tells, but one thing it tells us for sure is that most of the growth in income since 1979 has been in nonlabor income. Which is to say, not the kind of income that people like you and I get much of.

Kelly Evans writes in the Wall Street Journal today that NGDP targeting might not be the monetary panacea its supporters suggest:

There are at least three problems with this strategy, however. First, it assumes that the Fed can sensibly determine the “right” trend for nominal GDP. Second, it isn’t clear that it can actually achieve any such target. And third, doing so would run a huge risk of conflicting with the Fed’s congressional mandate to promote “stable prices”—something that can’t unilaterally be rewritten.

Matt Yglesias is unimpressed:

The fact that this doesn’t state the statutory mandate correctly should tip you off that something has gone amiss. The Fed’s actual mandate is a mixed mandate to pursue stable prices and full employment. For decades, however, it’s been a little bit unclear what this should mean in practice. One of the great advantages of an NGDP target is that it combines prices and real output (which is to say employment) in a single index.

....The other objections are worse. Having the Fed do anything assumes that the Fed can sensibly determine the “right” trend for whatever it’s doing. Similarly, any institution with any prescribed mission might fail to achieve the mission. Deploying this as an objection would be like a universal solvent.

I guess I'd read Evans a little more sympathetically. She does mention the Fed's dual mandate (low inflation and low unemployment) in the second sentence of her piece, so the rest of the column should probably be read partly as an opinion about whether the Fed should allow higher inflation right now in order to bring down unemployment. Matt is right that one of the theoretical virtues of NGDP targeting is that it combines both employment and inflation into a single metric, which would make this question moot for policymakers, but it unquestionably does imply that during recessions the Fed would tolerate higher inflation. I think that's a good thing (as does Matt); Evans doesn't. But it's certainly a key issue that deserves plenty of public discussion.

Evans's other two points are worth thinking about too. It's true that the Fed has to pick a target no matter what it's doing, but NGDP is a new one with no track record. That makes it trickier to get a consensus about what the right figure should be, and consensus is important since the whole point of NGDP targeting is that everyone has to believe the Fed is really, truly committed to its target. And the question of whether the Fed can hit an arbitrary NGDP target is critical. Central banks have pretty time-tested mechanisms for hitting inflation targets, but growth targets are something different. There are plenty of economists who are skeptical that monetary policy alone can accomplish this. I'm a little skeptical myself, and as I wrote yesterday, I also feel like some caution is warranted here. Finding some kind of mechanical monetary rule that automatically produces stable growth is sort of the Holy Grail of monetary economics, and we should subject any new proposed rule to plenty of tough questioning.

In the end, I think that for lots of people the issue of NGDP targeting has become sort of a foil for a different question: should the Fed engage in massive monetary easing right now in order to get the economy back on track? NGDP targeting says yes, so those of us in favor of easing are likely to find it an agreeable idea. Conversely, those who are afraid of the consequences of massive easing are likely to play up its problems. That's human nature for you. But regardless, it's good to get all this stuff out in the open.

UPDATE: Bennett McCallum, who's been advocating the idea of NGDP targeting (aka nominal income targeting) since the 80s, has a pretty readable primer on the subject here. Worth a look.

I'm a huge fan of Benjamin Wallace-Wells, and this month he has a terrific profile of Mitt Romney in New York magazine. But it probably isn't really right to call it a profile of Romney per se. It's more a profile of the Romney method, the way that Bain Capital, the private equity firm he ran during the 80s, helped usher in the shareholder value revolution that made American businesses leaner and meaner; spurred mass layoffs in the name of efficiency; and made huge, performance-based compensation for executives a standard feature of American corporations.

The whole thing is well worth reading, but if it's Romney himself you want some insight about, it mostly comes at the end. After retailing an anecdote about how Romney's interest in healthcare reform in Massachusetts was spurred by a short conversation with one of his former Bain partners, we get this:

What separates Romney’s plan from Obama’s—and gives some clues about his potential presidency—is its almost-accidental origin. Romney did not begin with a philosophical quest to improve American health care. He began with the idea of himself as a problem solver and asked those around him for a problem that he might usefully solve. I remembered, when I was told this story, an anecdote I’d heard from a former political staffer of Romney’s. On even basic philosophical questions like abortion, the staffer said, Romney did not try to resolve the question in the abstract, as a matter of principle, and would consider instead various hypothetical cases—for instance, a late-term abortion—and build from them a politics. The line that Romney is a flip-flopper may vastly understate the depth of the condition.

It is arresting to imagine a Romney White House, inevitably filled with as many former Bain colleagues as each of his other public ventures have been: The PowerPoints, the 80-20 jargon, the clinical separation of decision-making from ideology, the detachment of those decisions from moral consequence, a persistent blind spot for people as people. It would represent the final ascension of a perfectly American type, one that has already remade the culture of business. I once asked a Bain colleague of Romney’s how Romney thought of his own core competence. “I think Mitt thinks he’s good at being Mitt Romney,” the colleague said.

It's hard not to think of Robert McNamara and the whiz kids when you read that, and hard not to wonder if Romney's updated version would be equally disastrous. It would probably depend on circumstances. In Massachusetts it basically worked out OK. But if something like the Vietnam War crops up during a Romney presidency, it might not.

Anyway, read the whole thing. Immersing yourself once again in the LBO fever of the 80s and its consequences might or might not make your day, but it does give some real insight into Mitt Romney's character. Since he might very well be your next president, that's worth knowing.

In a Gallup poll released yesterday, 22% of small business owners said their most important problem was "complying with government regulations." That's not really surprising. What's surprising, frankly, is that it's taken so long for the number to rise even that high. Given the 24/7 blitzkrieg about "job killing regulations" from Fox News, the Wall Street Journal, and Republican politicians of all stripes, I'm surprised the number didn't pass 50% months ago. If you hear something often enough, it takes on a life of its own.

The truth, of course, is that business regulation hasn't changed all that much in the Obama era, and that's especially true for small businesses. There are some regulations in the pipeline for the future, but even there, most of the big ones — Obamacare, Dodd-Frank, new EPA regs — hardly affect small businesses at all. And most of the ones that would — dust rules, new licensing rules for farm vehicles — are myths.

You can see this for yourself if you read further in the Gallup poll. When they're asked about "problems," many small business owners immediately make an association with "government regulations." But when Gallup asks "what would you need to see in order to feel that your business will thrive in 2012?" that association goes away and you get a truer picture of what's really bothering them. This time, only 12% mention government regulations and a full 42% respond with some version of an improved economy. And it's really more like 59% if you include fundamentally economic complaints like "cash flow" and "availability of credit."

Everybody hates regulations, and small businesses have some legitimate gripes about overregulation. Right now, though, their real problem is crystal clear: the economy sucks and they need more customers. That's just a big fat reality, and there's nothing much that Fox News can do to change that no matter how much they try.

From Rick Perry, after John Harwood of the New York Times notes that his tax plan will mean huge tax cuts for the rich in an era of already skyrocketing income inequality:

But I don’t care about that.

I suppose there's something oddly refreshing about that response. There's also this:

Q. Why did you choose to keep the birther issue alive?

A. It’s a good issue to keep alive. You know, Donald [Trump] has got to have some fun. It’s fun to poke him a little bit and say “Hey, let’s see your grades and your birth certificate.” I don’t have a clue about where the president — and what this birth certificate says. But it’s also a great distraction. I’m not distracted by it.

I wonder what he thinks those last two sentences mean? Or is it just word salad, like much of the rest of the (short) interview, which is mostly just a core dump of the conservative id? It's hard to tell.

I dunno. Maybe your sense of humor isn't quite the same as mine. So no guarantees. But I swear I almost had a heart attack laughing at this ad from Herman Cain. I just couldn't stop. But you have to watch to the end. It's the cigarette and the smile that really make it. (Via Weigel.)

Brendan Nyhan offers this declaration: "I'm officially declaring the debate about whether Cain is a serious candidate over." Yes, please.

Huzzah! Rick Perry's new tax plan is out:

The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents....My plan also abolishes the death tax once and for all, providing needed certainty to American family farms and small businesses....To help older Americans, we will eliminate the tax on Social Security benefits....We will eliminate the tax on qualified dividends and long-term capital gains to free up the billions of dollars Americans are sitting on to avoid taxes on the gain.

In addition, Perry is going to lower the corporate tax rate, move to a territorial tax system, pass a Balanced Budget Amendment, ban earmarks, freeze federal hiring and salaries through 2020, halt all pending federal regulations, repeal Obamacare and Dodd-Frank, repeal section 404 of Sarbanes-Oxley, and add private accounts to Social Security (presumably without paying for them, per normal Republican doctrine)

I'm disappointed. Perry only wants to repeal section 404 of Sarbanes-Oxley? Why not the whole enchilada? What a sellout.

What can you even say about this? It sounds less like a tax plan than a big ol' stew pot of right-wing applause lines, all the way up to the inane insistence that eliminating the estate tax has nothing to do with rich people and is only designed to provide "needed certainty to American family farms and small businesses." Should we laugh or cry? Perry has actually managed to combine two separate conservative memes (the estate tax is all about family farms, uncertainty is hobbling the economy) into one single sentence that makes even less sense than either of them separately. It's hard not to be impressed.

But can we please spare a moment for the people who are really going to suffer because of this? Yes, I'm talking about whichever poor schlubs at the Tax Policy Center draw the short straw and have to go through the dreary motions of scoring this. We all know the basic answer, of course: Perry's plan represents a massive tax cut for the rich and a huge loss of revenue for the federal government. But we want numbers, dammit! Not that they really matter, since once they're produced we'll merely be told that they represent old-fashioned static thinking. What we need is a shiny new dynamic scoring of Perry's plan that takes into account the fact that it would, as James Pethokoukis puts it, "supercharge growth." I assume he tweeted that with a straight face, but on the internet you never know, do you?

And one last thing: you sort of have to admire Perry's gimmick of allowing everyone to choose between his plan and the existing income tax. You can almost imagine the conversation: one of his advisors points out that no matter how careful you are, someone will pay more under the new plan. Probably people with low incomes, and you just know the librul media will have a field day with that. "It's regressive! Rick Perry hates the poor!" It'll be a nightmare.

But Perry has a brainstorm! Give everyone a choice! This means that not one single person will pay more under his plan, because they can always choose the old system if they want. This means keeping all 60,000 pages (or whatever) of the old tax code, of course, so nothing really gets simplified. Still, no one pays more, and that's a guarantee. Beat that, Herman Cain.

A pair of MIT economists, Erik Brynjolfsson and Andrew McAfee, have written a new book suggesting that computers are finally getting smart enough to do jobs that only people could do in the past. Nothing new there. But they've joined a (still small) but growing number of observers who are afraid that the jobs being displaced are being displaced for good:

Faster, cheaper computers and increasingly clever software, the authors say, are giving machines capabilities that were once thought to be distinctively human, like understanding speech, translating from one language to another and recognizing patterns. So automation is rapidly moving beyond factories to jobs in call centers, marketing and sales—parts of the services sector, which provides most jobs in the economy.

During the last recession, the authors write, one in 12 people in sales lost their jobs, for example. And the downturn prompted many businesses to look harder at substituting technology for people, if possible. Since the end of the recession in June 2009, they note, corporate spending on equipment and software has increased by 26 percent, while payrolls have been flat.

…Productivity growth in the last decade, at more than 2.5 percent, they observe, is higher than the 1970s, 1980s and even edges out the 1990s. Still the economy, they write, did not add to its total job count, the first time that has happened over a decade since the Depression.

In the same way that investors get giddy when economic booms have lasted a long time (this time is different!), there's always a danger of getting too pessimistic when an economic downturn lasts a long time. Just because this recession is a deep one doesn't necessarily mean that it has brand new causes or that it's never going to end.

That said, take a look at the chart on the right. You've probably seen it dozens of times: It shows the percentage of people in the United States who are employed. Here's the important thing about it: It didn't peak in 2007 and then plummet during the Great Recession. It peaked in 2000, and it's been dropping ever since. Even the huge housing/credit bubble of the aughts was only able to hold it at bay slightly.

In other words, something happened around 2000 that pushed people out of the labor force. There are lots of possible culprits, so it's wise not to get too invested in a single explanation. Still, I'd say that 2000 is also about the time that computers seriously started to do human jobs. Just a little bit at first, and then more and more. This trend was masked a bit by the high fever we ran in 2003-07, but when the fever broke we compressed seven or eight years of decline into two.

My back-of-the-envelope guess has always been that job losses during the Great Recession have been about one-third structural and two-thirds cyclical. The cyclical part we could address with fiscal and monetary policy if our political leaders had the guts to do it. But I suspect that at least some of the explanation for the structural part is the growing sophistication of computers, and it's not clear what we can (or want to) do about that. Computers can't drive cars or trucks yet, but that day isn't far away. And when it comes, I still wonder what all those drivers are going to do.

If you read my epic post on NGDP targeting this morning, you'll recall that one of its virtues is that it automatically encourages higher inflation when the economy turns down and automatically encourages lower inflation when the economy is heating up. This is good for purely economic reasons, since low real interest rates help spur growth during recessions, but Steve Randy Waldman writes today that it has moral benefits too, including this one:

A second moral benefit is that under (successful) NGDP targeting, any depressions that occur will be inflationary depressions....If depressions occur even while the NGDP path is stabilized, then they will reflect some failure of supply or technology. Our aggregate investment choices will have proved misguided, or we will have encountered insuperable obstacles to carrying wealth forward in time. It is creditors, not debtors, whom we must hold accountable for patterns of aggregate investment. There always have been and always will be foolish or predatory borrowers willing to accept a loan that they will not repay. We rely upon discriminating creditors to ensure that funds and resources will be placed in hands that will use them well.

....I do not relish inflation for its own sake, or advocate punishing creditors because they are rich and the tall poppies must be cut. But if, despite NGDP stabilization, real GDP cannot be sustained, someone has to bear real losses. There are only two choices: current producers can be taxed in order to make creditors whole in real terms, or past claims can be devalued so that losses are borne at least in part by creditors. In my view, the latter is the only moral choice, and the only choice that creates incentives for investors to maximize real-economic return....

In theory — the theory being that the Fed is really, truly, rock-solid committed to NGDP level targeting and everyone knows it — creditors understand that they're going to pay the price for foolish loans. They might become insolvent, obviously. But even if they don't, they understand up front that if the economy tanks they're going to see the value of their loans erode because the Fed will temporarily engineer higher inflation. One way or another, they're going to pay the piper, and this will make them more careful in their lending practices.

Now, I'll confess that I have my doubts about that last sentence. Thinking Minskyishly, I suspect that creditors are just bound to act stupidly at the height of economic booms. If the fear of bankruptcy doesn't give them pause, a little bit of inflation won't either. As Steve says, they might deserve to take a hit more than, say, taxpayers or borrowers, but I doubt that the prospect of future inflation will change their behavior much.

No, the real virtue of NGDP targeting, if it works, is that it provides a good set of rules for countercyclical monetary policy, which should prevent economic booms from getting too far out of hand in the first place. But I think a bit of caution is still in order here. The Fed, along with other central banks, has been searching for a good monetary policy rule ever since the ancien régime collapsed in the post-Bretton Woods era, and so far the search for something truly automatic has been fruitless. NGDP targeting is the latest flavor of the day, and who knows? Maybe it really is the magic bullet. But while it might be a pretty good rule, something tells me that, like any rule, it will somehow be deemed inadequate during some future crisis. There is, after all, always the legitimate question of what the proper level target should be (it depends on population growth, technological growth, productivity growth, etc.) and there are measurement problems too, even for something as simple as NGDP. Finding some kind of mechanical monetary rule that automatically produces stable growth is sort of a Holy Grail among a certain set of economists, but we're probably not going to find one anytime soon.

In the meantime, though, it's possible that NGDP targeting is the best bet we have. It's certainly worth all the attention it's getting.

From Newt Gingrich, free associating on Herman Cain's road to the presidency:

I think one of the Republican weaknesses has been that we rely too much on consultants and too much on talking points. And we don’t rely enough on actually knowing things.

Seriously? Newt "Language: A Key Mechanism of Control" Gingrich is concerned that Republicans are relying a bit too much on mindless talking points these days? When did he have this Road to Damascus moment?