June 30, 2003
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.
Posted by Kevin Drum at June 30, 2003 10:08 AM
*cue rightwing agitprop on Welfare Reform*
You know, rarely do I meet someone as willing to regularly beat up tech geeks as you are. I'm starting to get depressed at myself, and I wasn't even one of those claiming to be a herald of a "New World Order!"
I wonder if you realize exactly how many of us tech geeks are readers of your blog. There are, of course, morons among tech geeks, just as there are morons amongst any group of people. Some of them even have platforms from which they can spout their silly theories. But if I had one thing to say about tech geeks, it would be that they are one of the most diverse groups of people I've ever had the priviledge to be a part of. Some are reclusive and independent and socially handicapped, some are vivacious and passionate and libertarian, and trying to lump them all into one bubble merely serves to inflame a group of people who are pretty much solely defined by a love of computers and what makes them work.
Leaving the techies-vs.-Neanderthals bit aside, I wonder whether Kaus was suggesting that the Clinton boom was better because its benefits reached more people at all levels of income. If so, he seems to have gone about it inelegantly.
'K OK, really, now with less snarkyness:
My experience is the same as Kevin Drum's, except maybe my orbit was shared with 20-something, overpaid, self-described "libertarians" who wanted all the services but none of the bills.
F'r instance, they'd screech with horror at the idea of the Orange County toll road, despite the libertarian-ness of only charging users for an amenity.
Lex: yes, that was exactly MK's point. I just didn't excerpt that bit of it since I was focusing on something else.
Kenneth: honest, I don't do it that often. And I guess I have to ask to cut me a little bit of slack here. Obviously I didn't mean *every* tech geek, but it's hard to constantly put qualifiers in every statement to make this clear.
The vast majority of tech geeks, of course, are just ordinary schlubs like you and me. The ones I was referring to were the more famous variety who fueled the dotcom boom. However, I have to say that the attitude I'm talking about filtered down in attenuated form to an awful lot of the ordinary tech people I knew as well....
Kevin: Believe me, I know of whom you speak. I just hate it that they sort of became the spokespeople for the tech industry. I know I never said "Hey! I want super-libertarian black-helicoptor supremicist Asberger Syndrome social rejects to represent me!" But represent they did.
I'd like to lay some smack down on them. Pop a cap in their ass. If you will.
I'll cut you some slack, promise. But please — I'm a tech geek. Don't send me spiralling into clinical depression!
I worked as a software engineer and a stock annalyst at a small start up on wallstreet for 2 years ending oct. 2001.
My universe was a confluence of tech/math geeks and macho hedge fund traders.
We were smart and dedicated but we were also monumentaly arrogant.
The oldest guy at our company was 35 and we really thought that we were the vangaurd of a new era of "enlightened" stock trading.
Not only did we think we'd be making globs of money forever, we really thought we'd change the world.
A coworker was even convinced that our automated hedge fund would revolutionize social security, medicare and the IMF (I shit you not)!
Now, non of this meant that we specificaly (or techies in general) are uniquely vain, just that we're human.
I am absolutely convinced that if tomorrow there were an "accounting" boom, young CPAs would go around preaching the gospel of "prorated cost actuation" and vapid morning show hosts would be babbling about the "pocket protecter generation".
It's the nature of the beast.
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.
I think the object lesson here is more limited: It's a case study in the problems caused by privileging investment income over labor income.
I have trouble imagining any problems that could arise by reversing that privilege. What, too many people would be tempted to get jobs? An overemployment bubble?
I'm still rooting for the "Didn't Do Shit To Earn It" system of taxation, in which money that you didn't labor to earn (most inheritance, capital gains, dividends) will be taxed more heavily than money you did labor to earn (income tax). I would be amenable to dropping the sales tax entirely, and taxing property only when it is sold.
I'm enough of a meritocrat to think that income inequalities born of difference in ability in useful fields are preferable to income inequalities due to inheritance. Obviously, ability is much determined by opportunities in youth. Kids who go to schools that have computers, and whose parents own a PC, are going to have a much better chance to become tech geeks in the first place.
As for the tech geeks' being arrogant -- they are!
Sorry, but their very passion for their own field tends to make many of them dismissive of pretty much all other human endeavor and any film that didn't require a special effects team.
At least the Masters of the Universe in the 1980s didn't try to convince people that corporate raiding was better work in any non-monetary way -- more interesting or spiritually/ intellectually rewarding, more contributive to a better world -- than being a history professor was.
Yeah, I gotta agree with you on this one, Kevin. I was there in San Jose through the boom too, and the whole idea of a company being "post-profit" was the moment when I realised I was surrounded by loons.
My take on it the whole time was that, yes, "cyberspace" or whatever other buzzword you want to use was becoming (and still is becoming) an important new venue for business. But in a capitalist society, you have to make money. And there were an awful lot of dot coms with no particular plan for doing so.
However, I think now is a great time to throw out a link to this collection of failed dot-com farewell pages.
Kevin says: 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.
Psychologists have a fancy name for this: the Self-serving Error.
>>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
hmmm... something arguably "bad" happened, so it becomes "Clinton approved" rather than the "GOP lead Congress passed" ... Interesting way to phrase it.
According to the Representative Chris Cox (R-CA), chairman of the House Policy Committee, writing in the a href="http://policy.house.gov/annreport/2000/charts.html">2000 Annual Report of the United States Government (sounds damn impressive, doesn't it?):
"In 1997, Congress reduced the rate of tax on so-called "capital gains." This tax applies to the sale of assets such as houses, stocks, and retirement funds, as well as other kinds of productive investment. Congress, over the objections of then-President Clinton, lowered the capital gains tax rate from 28% to 20% in that year."
Cox then goes on and on extolling the fiscal benefits of the capital gains reduction, corralating them with increased Treasury revenues:
"In recent years, moderating the rate of tax on savings and investment has correlated with higher voluntary capital gains realizations and higher revenues to the U.S. Treasury.
Congress attempted to further reduce the capital gains tax rate in 1999, but then-President Clinton vetoed that legislation."
So why are you blaming Clinton for this - or, rather, if this as awful as you are writing it up with your perfect 20-20 hindsight vision, why are you giving those tax cutting Congressional Republicans who don't seem to give a crapola about the consequences of anything that they do as long as it involves cutting taxes an absolute pass on this while using the opportunity to take an EXTREMELY cheap shot at Clinton? You didn't have to write it the way you did, and I can't help but wonder why.
Kevin, have you "flipped" on us?
Brings to mind the ultimate (for my money) illustration of the "We're changing the world, ma!" attitude: the two Razorfish founders spouting the most incredible gobbledygook on 60 Minutes, completely incapable of providing a coherent answer to the question "What does it do?". That, to me, is when the emperor's lack of clothes became terribly apparent.
Dang - link for the above post
"Sorry, but their very passion for their own field tends to make many of them dismissive of pretty much all other human endeavor . . ."
Funny thing is that this statement describes well one other profession (which includes many in my family) that has the same combination of passion and dismissiveness -- farmers. Many of them really don't understand why a person might want to do something else with their life.
Kenneth -- I didn't ask for my profession to be represented by Johnnie Cochran and Jay Seculo either, but having the most obnoxious lawyers as the public face of the profession has sold a lot of joke books and John Grisham novels -- as well as providing a lot of political ammunition for groups who for less-that-benign reasons would like to "kill all the lawyers."
Hmm well, I was/am a tech geek throughout the boom and bust; never made tons of money (though I did and do live quite comfortable); and I went pretty much the opposite way to what treetop describes as human nature -- that is to say, I attribute/d what I got to luck, meanwhile beat myself up for not being smart or savvy enough to make it big.
"Leaving the techies-vs.-Neanderthals bit aside, I wonder whether Kaus was suggesting that the Clinton boom was better because its benefits reached more people at all levels of income. If so, he seems to have gone about it inelegantly."
-Posted by Lex at June 30, 2003 10:26 AM
I'm sure that if he did directly compliment Clinton, Kaus' head would explode, like in the movie 'Scanners'. I wouldn't be surprised if that back-handed compliment caused a few burst blood vessels in Kaus' brain. Not that anbody would notice :)
I'm pretty much with Kevin here. I've worked in the EE end of hi tech for nearly 20yrs, one constant has been the stereotypical libertarian entitled-ness of most (certainly not all) of the participants. The most annoying would be when manufacturing would get sent overseas, and the engineers would cluck their collective tongues and go on about "serves them right--overpaid union slackers". Any suggestion that their jobs might be next was met with total derision.
Well, guess what? Now their jobs ARE going overseas and I finally see some reassessment of the sense of the libertarian "I got here by the sweat of my brow, everyone else is lazy" point of view. Guess what, you can work your ass off and still be unemployed and broke just like everyone else....
Actually, the distinction between the Clinton years and the Reagan years on this topic is that Clinton actually attempted to institute policies that helped those at the lower end of the income scale.
Specifically, he increased the coverage of the earned income tax credit and he targeted his college scholarship program (was that the "hope" program? am i remembering correctly?) at lower-mid income families.
While i don't have the time right now to look up the stats (maybe later today), one of the results of Clinton policies was that the rate of increase of the gap between high income and low income slowed.
P.S. Barry, believe it or not, Kaus is not a knee-jerk Clinton-hater. He's a knee-jerk lot of things, but Clinton actually comes closer to his idea of a good president than president backbone (fer instance).
Wait, wealth was less celebrated under Clinton than under Reagan?
I'm young, so I missed most of the Reagan years, but did Kaus see what was going on with people like Bernie Ebbers or Ken Lay? Did he notice all the newspaper and magazine articles about the fabulous lives of the new rich?
Gonna have to say I disagree.
It may have been that the techies felt they were "better" and so did the raiders of the 80's, but the comparison relies on a high level of abstraction that I don't think is the most accurate.
Almost any cohesive group is going to think that its members are superior to outsiders. Why else would they value membership in the group?
And that doesn't mean that they all think they are "better" in the same way.
The techies didn't think they were better because they were ordained as so by God himself, or build a series of corollary beliefs upon the basis of their inherent superiority leading them to morally questionable behavior. They believed they were "better" because they "got it," but anyone could "get it" so long as they immersed themselves long enough. "Getting it" was fairly arbitrary -- you didn't have to have a certain breeding, a certain fortitude or even work very had. Basically you just had to be there. And while they may have taken a certain pleasure in that self-flattering belief, they didn't go around firing on anyone not sharing it.
But if you choose an abstraction simple enough -- they think they are better than others -- you could even say they were basically the same as any number of other abhorrent social diseases inflicted on humanity over the centuries. That may be taking it too far, but I don't see the logical difference using the reasoning presented, and if that's true, then I would not agree that the comparison is accurate.
Software? No wonder. Code monkeys are insane. All the hardware guys I know were as leery of the bubble as anybody... but for some reason building machines and networks for eight hours a day doesn't turn your brain to tapioca like 20 hours of coding a day does.
Harry Tuttle: [working] for eight hours a day doesn't turn your brain to tapioca like 20 hours of [working] a day
So, you're saying you're a commie pinko who thinks hard work and apple pie and Moms cause tapioca-brain? Why, no one working less than 25 hours a day should be considered a hard-working, honest American!
Typical librul Knee-Jerk Anti-American!
This ties in with the union debate from last week, when I was tryin' to unionize at Amazon.com, in our emailbox we'd receive seriously insulting, even threatening messages from people vehemently disgusted with the very idea of a union.
They were all from techies, or those trying to get into the techie departments. Pretty much all of them had the same basic things to say:
There's no need for unions anymore in the new economy.
Only people who don't have the skill to make it on their own want unions- this was usually phrased in such a way that it was clear the authors thought of themselves as some sort of cowboy tech-slinger, hired cuz they're the best.
Anyone who wants a union is, a) a pussy, and b) without the mad skilz that make one a hot prospect, which makes them un-layoff-able, which therefore negates the need of any unionizing.
Did they think they were better than other people in a very direct, conscious way? Oh, hell yes. Very much so. Don't get me wrong, I like most techies, but, techies as a sub-culture all tend to share various personality traits. Not a very good sense of humor (meaning their sense of humor is very narrow and myopic)? Check. Socially awkward? Check. Insecure, yet at the same time unable to self-assess? Check. All makes for, well, nerds. You get a nerd who's a bit vindictive, who feels unnapreciated, and suddenly put them on top... geek tyrant time.
Most definitely Seattle at that time was a city filled with inordinately arrogant dorks (Wow! You know Perl? Can I please offer myself to you?), who, in this "new" economy, are probably a little humbler.
My view of the tech bubble, as a techie myself, was that the people making millions on IPOs were less techies and more get-rich-quick types - creating a website is not something that requires a great deal of technical training. As well, those internet startups which failed did so because they didn't have any significantly new technology to offer - they were just jumping on the bandwagon.
I think the real story of the tech bubble was that huge numbers of the middle-class invested in stocks on the promise of a never-ending boom caused by the wonders of market populism, and lost money, while Wall Street did quite well, even through the crash. This is documented (exhaustively) in "One Market Under God", by Thomas Frank.
You say, "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." However, it is pretty unfair to keep hinting that the current economic malaise is largely a consequence of the irrational exuberance of the 90s.
If the fiscal policy pursued by this administration had not been so inept over the last 2+ years, the outcome could have been significantly different. We may not be in a rut as deep as we seem to be. Supply side "economics" is not an economic solution in any environment and it is probably making the economic situation worse. The economic situation in 2001 may have been reasonably attributed to the bubble but I haven't seen compelling evidence that the situation in 2002 and 2003 can be entirely or significantly blamed on the bubble. I am not saying the bubble has had no role to play in where we are today, but it cannot be simply assumed that it is the main reason for where we are now.
As an overaged '60s hippie, all these quotes from the tech geeks are all too reminiscent of the kinds of attitudes we ourselves had. We were arrogant that we were going to tear the system down and rebuild the world into a utopia. The difference between then and now is that the drug of choice today is greed. Lighting up today might be the day trader rolling a stock for profit instead of a doobie. Turning on, tuning in and dropping out could today be the latest Ponzi scheme masquerading as the hot tip of the day instead of an acid-tripping commune. The end result is the same - an excursion into a world that doesn't exist outside the mind of the beholder.
We from the '60s had out reality check with the rise of Ronald Reagan. What is going to be the reality check of today's Wall Street Warrior?
Well, there's no question that the tech bubble was an intersection of techies AND finance folks. Bad combination. But it was the techies who provided all the visionary BS that convinced everyone else we were living in a new era.
TR: actually, it looks to me like we are indeed still shaking off the bubble. The stock market is still overvalued, tech investment is down, and inventories are still too high. Y2K also had something to do with this.
Bush's tax cuts aren't the right medicine, that's for sure, but I suspect that even a better plan would have only a mildly better outcome. There's a limit to what the president can do, although, like you, I would argue that Bush hasn't even done that much.
I think the real issue here, as pointed out above, is Welfare Reform. But the point is that while Clinton did away with much of traditional welfare, the Earned Income Tax Credit actaully made many poor people better off. Bush is seeking to repeal these - I don't know how far he's gotten. But right there we can see the difference between Clinton and Bush.
"Bill Clinton approved a cut in the capital gains tax from 28% to 20%."
Congress was driving that one. Credit were credit is due.
I read this great article that compared the Reagan and Clinton booms, and explained how Clinton was so much better for regular folks.
Unfortunately, I can't find it.
But my personal experience, graduating from high school as Reagan was elected...shit!
The Reagan-era attitude was, "If you don't have money, fuck you."
That son of a bitch destroyed so much of our social fabric just through his rhetoric. Unions had no reason to exist, nobody had a right to decent health care, and welfare was just a giveaway to Cadillac-driving slackers.
I love his movies, but I'll dance on his grave.
Congress definitely drove the 1997 capital gains cut, but Clinton *did* sign it. I don't think he can evade responsibility for it, although he can share it.
"Congress definitely drove the 1997 capital gains cut, but Clinton *did* sign it. I don't think he can evade responsibility for it, although he can share it."
Ok, then we should praise Bush for signing the campaign finance bill, even though he clearly didn't want it?
Personally, having also lived through the Reagan-era, I remember the slogan as "I've got mine, screw you!", but I'll accept your version as well.
Dude, if you admit it was a bubble then the unwinding of that bubble isn't Bush's fault. Get a clue!
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