This is a fascinating little bit of analysis in, of all place, Mother Jones, where James Galbraith gives us “Bush’s Beltway Boom.” In it, he describes how the people at the top of the food chain (the top 1% that everyone is getting so upset about) has changed in the Bush years from the Clinton years. In essence, a lot of the wealth gains in the late Clinton days were tech related while in the Bush era, Beltway counties that showed the greatest income gains.
Now as much as the depiction of “who gained and lost” is generally true, there is a bit of legerdemain here. Truly obscene amounts of money were made by the lucky few who cashed out at the right time in the dot-com frenzy, and by some of the service providers (for example, Morgan Stanley analyst Mary Meeker made over $10 million a year for a while and didn’t go to jail either). Except for people who hold options on Halliburton stock, partners at the Carlyle Group, and a few top lobbyists, it seems unlikely that people in the DC orbit can make the same dough as top people in the tech arena. But perhaps I am misinformed.
The “Democrats gave us tech, the Republicans gave us pork” dichotomy that Galbraith give us is overdone. The last bit about the Republicans is true, the first part is more complicated.
The irony with the tech boom is that the Democrats did the most they could for it by staying out of its way. That is of course contrary to the image that the Republicans like to convey. And the frenzied phase that led to the great increase in wealth in Silicon Valley, well I don’t know if I’d hold that up as a shining example of capitalism (but again, it looks not too bad next to the no-competing-bid outsourcing that has grown under Bush). The Greenspan-fuelled dot-com bubble looks, in retrospect, more like wealth transfer than wealth creation. But it did leave us with some pretty cool toys.
The rise of the Democrats brings some much-needed attention to the issue of income inequality, but while most observers focus on how income is distributed among people, it is also revealing to look at the distribution across places. This measure of income inequality, calculated using tax data recorded by county, actually declined quite sharply after 2000. Why? Because it tracks, with uncanny precision over more than 30 years, the nasdaq stock index. After declining in the early 1970s, both indices rose almost steadily until they reached an all-time peak in 2000; both fell thereafter.
In other words, income inequality in the United States has been driven by capital gains and stock options, mostly in the tech sector. This is what separates that mysterious top .01 of 1 percent from the rest of us: They’re the people who run Google, Oracle, and eBay.
County data confirm this: The big income winners in the late 1990s were concentrated in just four counties—Santa Clara, San Francisco, and San Mateo in California (all in the environs of Silicon Valley), and King County in Washington (Microsoft)—as well as in Manhattan, the home of the bankers who made it happen. Take the big tech counties out, and the rise in inequality between counties in the late 1990s disappears. And, of course, while these counties were big winners through 2000, they became the big losers in the Bush Bust.
Though the tech bust reduced inequality in America, it doesn’t follow that only rich places lost out, still less that only poorer places gained. In fact, there was one group of counties that did exceptionally well in the first four Bush years. Guess what? They’re concentrated around Washington, D.C. Of the top 10 gainers from 2000 to 2004, three are Washington neighbors (Fairfax, Montgomery, and Baltimore), and one is D.C. itself. Among the top 35 gainers, there are five more counties in the immediate vicinity. Conversely, none of the top 50 losers are near the capital.
This should remind us that the Democrats under Clinton fostered a private-sector investment boom, fueled by technological optimism and foreign money. In economic terms, Al Gore really did invent the Internet, in a way; his cheerleading (and Clinton’s, and Greenspan’s) steered money into that nascent boom. True, certain citizens got very, very rich. But the tech boom was also good for most of the rest of us: We had nearly full employment, rising wages and productivity, and little inflation; we also got a lot of fiber-optic cable, cheap phone calls, and fast video games.
Bush inherited a bust. He fought it by cutting taxes, with a strong tilt toward the rich; together with low interest rates, this fostered a vast housing boom, now deflating. Much of that housing was high-end, as any visitor to the posher suburbs can tell. And though it was stronger in some places than others, it was widely diffused. Was this the right use of resources? Not in my book. But all that construction did keep the economy going when it might otherwise have tanked.
Bush’s other big policy was to increase government spending, above all on the military. Who profits? Private contractors, consultants, Beltway bandits. And the epicenter was Washington and its suburbs, home to not only the Pentagon, the cia, and the National Security Agency but also, not coincidentally, defense contractors such as Lockheed Martin and General Dynamics