Posted by
voice_of_reason on Thursday, September 20, 2007 3:49:37 PM
Paul Krugman has a new
blog that is titled "The Conscience of a Liberal".
In his introduction to the new blog, Krugman explains the name of his blog :
"... because the politics and economics of inequality will, I expect, be central to many of the blog posts – although I also expect to be posting on a lot of other issues, from health care to high-speed Internet access, from productivity to poll analysis."Well, it would be downright ungracious to ignore his valuable comments on these subjects - so, readers of
this blog can expect to find frequent commentary and analysis of Krugman's articles!
Krugman's introductory post is a lament about the great divergence in America - he says:
"a chart that’s central to how I think about the big picture, the underlying story of what’s really going on in this country. The chart shows the share of the richest 10 percent of the American population in total income – an indicator that closely tracks many other measures of economic inequality – over the past 90 years, as estimated by the economists Thomas Piketty and Emmanuel Saez. I’ve added labels indicating four key periods. These are:
Select quotes from Krugman's descriptions of the above periods:
The Long Gilded Age:
".. income remained about as unequally distributed as it had been the late 19th century – or as it is today. Public policy did little to limit extremes of wealth and poverty, mainly because the political dominance of the elite remained intact; the politics of the era, in which working Americans were divided by racial, religious, and cultural issues, have recognizable parallels with modern politics."The Great Compression:
".. was created, in a remarkably short period of time, by FDR and the New Deal. As the chart shows, income inequality declined drastically from the late 1930s to the mid 1940s, with the rich losing ground while working Americans saw unprecedented gains. Economic historians call what happened the Great Compression, and it’s a seminal episode in American history." Middle class America:
"That’s the country I grew up in. It was a society without extremes of wealth or poverty, a society of broadly shared prosperity, partly because strong unions, a high minimum wage, and a progressive tax system helped limit inequality. It was also a society in which political bipartisanship meant something: in spite of all the turmoil of Vietnam and the civil rights movement, in spite of the sinister machinations of Nixon and his henchmen, it was an era in which Democrats and Republicans agreed on basic values and could cooperate across party lines. "
The great divergence:
"Since the late 1970s the America I knew has unraveled. We’re no longer a middle-class society, in which the benefits of economic growth are widely shared: between 1979 and 2005 the real income of the median household rose only 13 percent, but the income of the richest 0.1% of Americans rose 296 percent. "
The first thing that struck me, as I read Krugman's post, was that it exposes his view that economic equality is (and should be) the yardstick by which the success of a political or economic system should be measured. He doesn't seem to care whether equality is achieved by spreading
poverty, or by raising the economic level of those who are poor. The 'great compression' that he speaks of in glowing terms was caused by the Depression; FDR's New Deal helped in prolonging the length and severity of the Depression . In Krugman's world, those were good times, because
everyone was relatively poor!
Later in the article Krugman notes that:
the great reduction of inequality that created middle-class America between 1935 and 1945 was driven by political change; I believe that politics has also played an important role in rising inequality since the 1970s. It’s important to know that no other advanced economy has seen a comparable surge in inequality .."
It is difficult to understand how a trained economist like Krugman can miss the point about Capitalism being a political and economic force for good. FDR's experimentation with socialism took America away from the path of Capitalism - and our society paid dearly for it. The period of equality that Krugman praises was actually one of unemployment and shortages.
Likewise, the inequality (since the 1970s) that he disparages actually came from increased productivity that was achieved by the existence of free capital markets and relatively low taxes. Although there were more rich people in America (spiking the 'inequality' graph), there was also an expanding and enriched middle class. It could be said that after absorbing the punishment of FDR's policies, the American economy finally began to grow its way out of the decline of those terrible years.
Krugman continues:
On the political side, you might have expected rising inequality to produce a populist backlash. Instead, however, the era of rising inequality has also been the era of “movement conservatism,” the term both supporters and opponents use for the highly cohesive set of interlocking institutions that brought Ronald Reagan and Newt Gingrich to power, and reached its culmination, taking control of all three branches of the federal government, under George W. Bush. (Yes, Virginia, there is a vast right-wing conspiracy.)
Because of movement conservative political dominance, taxes on the rich have fallen, and the holes in the safety net have gotten bigger, even as inequality has soared. And the rise of movement conservatism is also at the heart of the bitter partisanship that characterizes politics today.
Surely Krugman cannot miss the causal linkage between lowering taxes and increasing wealth. Could he be so ignorant as to reverse cause and effect?
By pretending that wealth is a zero-sum concept, Krugman uses a typical Leftist trick. The reader is led to the assumption that lower taxes (a nasty Republican device) cause inequality, which must be bad (because Krugman said so, and it just
seems unfair). Therefore, Republicans are bad.
The reality is that lower taxes release more capital that can be used to produce
more wealth. The increase in a nation's wealth is predominantly in the hands of those who take risks, work hard, invest capital etc. While this may be disproportionate, it is by no means unfair! Any effort to curb the success of the productive minority in this country will have disastrous effects on the entire economy. However, those curbs will be successful (in Krugman's view) because they would help to equalize poverty.
Although all citizens benefit from having more capital in their economy (raising more out of poverty, and enriching the middle class), there will always be inequality - as long as people have different abilities - and that is not the evil that Krugman claims it to be.
Krugman's world-view is one of inverted reality. FDR's New Deal is something that he praises, despite the clear evidence of its failure. In fact, the stench of the New Deal lingers to this day in the form of a growing
welfare state that harms the welfare of the state(*). A thriving economy, fuelled by tax cuts is disparaged by Krugman - despite the obvious increase in the standards of living of middle-class America.
A clever use of statistics, Mr. Krugman, but your analysis doesn't pass the smell test.
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(*) this phrase was adapted from a similar phrase in one of George Will's recent columns!