An excellent blog post by Australian economist John Quiggin: Where the money is. Excerpt:
My analysis is quite simple and follows the apocryphal statement attributed to Willie Sutton. The wealth that has accrued to those in the top 1 per cent of the US income distribution is so massive that any serious policy program must begin by clawing it back.
If their 25 per cent, or the great bulk of it, is off-limits, then it’s impossible to see any good resolution of the current US crisis. It’s unsurprising that lots of voters are unwilling to pay higher taxes, even to prevent the complete collapse of public sector services.
Median household income has been static or declining for the past decade, household wealth has fallen by something like 50 per cent (at least for ordinary households whose wealth, if they have any, is dominated by home equity) and the easy credit that made the whole process tolerable for decades has disappeared.
In these circumstances, welshing on obligations to retired teachers, police officers and firefighters looks only fair.
In both policy and political terms, nothing can be achieved under these circumstances, except at the expense of the top 1 per cent. This is a contingent, but inescapable fact about massively unequal, and economically stagnant, societies like the US in 2010.
By contrast, in a society like that of the 1950s and 1960s, where most people could plausibly regard themselves as middle class and where middle class incomes were steadily rising, the big questions could be put in terms of the mix of public goods and private income that was best for the representative middle class citizen.
The question of how much (more) to tax the very rich was secondary – their share of national income was already at an all time low.
The problem is that most policy analysts and commentators grew up in the world of the 1950s and 1960s, or at least in the mental world created by that era.
So, they are busy fighting about tax expenditures, barber licensing and teachers unions, and the implications of these things for a hypothetical working class mobilisation.
Meanwhile, most of the anger created by the collapse of middle class America is being directed not at the rich but at those who don’t look, sound or pray like Americans of the vanished golden age.
For some good discussion on this post, see Yves Smith's post at Salon, where I found the link to Quiggin.