Editore"s Note
Tilting at Windmills

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June 30, 2003
By: Kevin Drum

MASTERS OF THE UNIVERSE, 90s STYLE....Mickey Kaus notes today that while the incomes of the rich skyrocketed during the Reagan years, they also skyrocketed during the Clinton years. But he suggests that the Clinton boom was better because it didn't repeat the Reagan era's "unseemly celebration of wealth."

Fine, whatever, but then he says this:

Assignment Desk: Someone should defend the Clinton Boom, precisely on the grounds that '90s income inequality was relatively benign compared with '80s income inequality. Specifically, it was less corrosive of social equality. The basic argument: Most of the tech geeks and stock traders of the 90s couldn't possibly have thought they were better than the non-rich--they had so obviously lucked out into a windfall.

My evidence on this is anecdotal, of course, but having been in the software business throughout the entire boom this strikes me as completely wrong. In fact, 180 degrees wrong.

Far from thinking of their wealth as a lucky windfall, the tech geeks I knew were all convinced that they were the heralds of a new world order: they made lots of money because they "got it" and the neanderthals didn't. It was inevitable and perfectly just that in this brave new world brainy people would eventually take over everything. How else could it be, after all, in a world so dependent on technology?

Even the stock traders I knew felt much the same way. They weren't just riding a wave, they were causing the wave. Their gains weren't due to luck, they were due to savvy investing and an ability to see the future that others lacked.

It's a fact of human nature that when people do well they invariably attribute it to their own skill, and when they do poorly they attribute it to outside factors. The tech geeks of the 90s were no different.

UPDATE: And one other thing about the tech bubble: in 1997, one year after Alan Greenspan warned of "irrational exhuberance" in the stock market, Bill Clinton approved a cut in the capital gains tax from 28% to 20%. This helped take an overheated market and turn it into a full fledged bubble, the effects of which we're still trying to shake off six years later. This is practically a case study in the problems caused by favoring certain kinds of income over others in a tax system.

Kevin Drum 10:08 AM Permalink | Trackbacks

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