Paul Krugman, no stranger to these pages, has a particularly insightful take on the factors of economic growth. He shows us that a lot of Very Serious People (his term) draw conclusions not supported by the evidence.

Krugman quotes a couple of VSPs. One argued that the economy took off with the dismantling of regulations, especially on the financial sector. The other attributed growth to the rise of the financial sector.

But, as Krugman points out, the economy grew more during the two decades following the end of WWII. Here’s a chart based on data from the Bureau of Economic Analysis.

Financial deregulation began in the 70s under Nixon and continued through Clinton’s terms, with the end of Glass-Steagall. That’s when the economy started its downward trajectory.

As I’ve mentioned previously, the incomes of all fractiles (as Emmanuel Saez puts it) steadily, albeit modestly, rose—until the 1970s. Beginning with Nixon the country experienced what I call ‘the Great Divergence.’ That’s when the income of the top one percent, and especially the top 1/100th percent took off. The Rest of Us, meanwhile, saw wages stagnate or fall in real terms.

Krugman includes his own chart (based on Saez’s data).

John F. Kennedy famously asserted that “a rising tide lifts all boats” (actually from the Chamber of Commerce). That was true in the 50s and 60s. However, the tide has been falling since, though not the fortunes of the rich.

Hmmm.