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There is a mental disease going around, and it looks as if left-liberal Nobel Prize-winning economists are especially apt to get it. I first observed this malady’s ill effects when I was in, if I remember correctly, third grade. Whenever our teacher briefly absented herself from our classroom, there was a boy in the class who would jump up and begin to clown around in front of the room. We found his antics amusing. But in later years when I encountered the like I tended to feel a mixture of pity and disgust. Those who crave attention that desperately are apt to jettison every shred of dignity.
When I read a column by Paul Krugman or, on rare occasions, see him on television, I find myself remembering that third-grader. Krugman is a man of intelligence. Once upon a time, he did fine work in economics. In the years that have passed since The New York Times gave him a soapbox to stand on, he has repeatedly made an ass of himself, railing and ranting in a transparently partisan fashion to such a degree that one occasionally finds oneself wondering whether he retains any capacity for judgment at all. Do you remember when he argued that the Enron scandal was of greater significance than the 9/11 attacks? Well, it has been downhill from there.
And, alas, Krugman is not the only Nobel prizewinner to have lost his wits. Take a look at the article entitled “Inequality” that Joseph E. Stiglitz has just published in Vanity Fair. Its theme is straightforward. There is, Stiglitz wants his readers to believe, no appreciable difference between the United States and countries like Egypt, Tunisia, Libya, Yemen, and Bahrain “where a minuscule fraction of the population – less than 1 percent – controls the lion’s share of the wealth; where wealth is a main determinant of power; where entrenched corruption of one sort or another is a way of life; and where the wealthiest often stand actively in the way of policies that would improve life for people in general.”
His evidence? That “the upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year.” How has this happened? “Lowering tax rates on capital gains, which is how the rich receive a large portion of their incomes, has given the wealthiest Americans close to a free ride.” Some have profited from “monopolies and near monopolies”; others have profited from “manipulation of the financial system.” Worst of all, the top 1%, he asserts, control everything.
Virtually all U. S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent.
Those in “the top 1 percent may complain about the kind of government we have in America, but in truth they like it just fine: too gridlocked to re-distribute, too divided to do anything but lower taxes.” They lead us into wars that they do not fight and are unwilling to pay for. They oppose government investment in infrastructure, education, and technology. They have “the best houses, the best educations, the best doctors, and the best lifestyles,” but they lack an “understanding that their fate is bound up with how the other 99 percent live.”
There is one defect in Stiglitz’ argument. It is notably short on hard evidence, and, when Stiglitz has a figure of any solidity that he can bandy about, the figure that he chooses is highly misleading. It may or may not be the case that “the upper 1 percent are now taking in nearly a quarter of the nation’s income every year” (I would like to see the precise figures, starting in, say, 2005 and running through 2010). But even if this is true, it indicates very little – for, as we are all reminded in mid-April every year, there is a considerable difference between what one takes in and what one ends up with.
There is, for example, the little problem of taxes. The top 1 percent pay something like 50% of the federal income taxes collected every year, and they pay 40-45% of the income taxes collected in states such as New York, Connecticut, New Jersey, and California (where they are especially numerous). As Robert Frank points out in a lengthy and detailed article published in The Wall Street Journal in late March, the tax codes in those states and in others such as Illinois are skewed in such a fashion that – when there is a severe economic downturn and the income received by the top 1 percent falls suddenly by 16%, as recently happened – these states encounter a dramatic shortfall in revenues.
Then, there are transfer payments – Social Security, Medicare, Medicaid, Food Stamps, Unemployment Compensation, just to mention a few. And there is the question of total compensation – including medical insurance, pension benefits, and the like. To get an accurate picture, one would have to take all of this into account – and one thing is clear. The inequality that exists in the United States is not even remotely as stark as Stiglitz suggests.
Let me add that, if the top 1 percent exercised anything like the influence that Stiglitz attributes to them, they would not be taxed as much as they are. In the last quarter century, he tells us, we have gone to hell in a handbasket. But between 1994 and 2007, the percentage of the revenues from income tax collected in the state of New York that came from the top 1 percent jumped from 25% to 41%. It would be interesting to see what an accurate accounting of Stiglitz’ claims regarding the makeup of the U. S. Senate and the House of Representatives would reveal. My bet is that his claims in this regard are no less exaggerated.
I do not want to suggest that Washington, D. C. is free from corruption. A glance at David Freddoso’s new book Gangster Government: Barack Obama and the New Washington Thugocracy would be sufficient to relieve one of any such illusions. Under our current President, crony capitalism has become an extremely serious problem. Nor would I wish to deny that inequality is greater now than it was in 1980. In an era of technological dynamism and rapid productivity growth, investors who own stock and bonds or risk their money as venture capital are apt to rake in outsized profits. But Stiglitz’ larger claim that the rest of us have not gained in the last quarter century as well is preposterous. However you measure it – by the size and quality of the houses that we live in, the quality and safety of the cars we drive, the gadgets we possess, the vacations we take, the meals we eat out – we are clearly better off.
Like Krugman, Stiglitz trades on the prestige he gained as a result of the excellent work he did in a technical field within economics. And, like Krugman, he is attempting to take advantage of an economic downturn to sell us snake oil. Both men seem to think that those who read the left-liberal journals for which they write – The New York Times and Vanity Fair – can easily be conned. And on this point, alas, they may well be right.