Contributor Post Created with Sketch. Krugmanitis Fells Another Nobel Prize-Winner

 

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.”

joseph-stiglitz.jpg

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.

There are 21 comments.

Become a member to join the conversation. Or sign in if you're already a member.
  1. Profile Photo Member

    Professor Rahe, I respect your opinions greatly.

    But I would suggest that there is something to what Stiglitz is saying. It’s becoming increasingly apparent that a plutocratic class has emerged in this country and that many of them benefit greatly by their rent-seeking manipulation of the political system.

    Billionaires such as Warren Buffett and George Soros spend millions to lobby Congress in favor of tax laws and regulations from which they personally benefit. The working and middle classes have no such influence. Multi-millionaire farmers and ethanol producers exercise their political influence to enrich themselves at the expense of consumers. The list goes on and on.

    • #1
    • April 13, 2011, at 2:44 AM PDT
    • Like
  2. Paul A. Rahe Contributor
    Paul A. Rahe
    Kenneth: Professor Rahe, I respect your opinions greatly.

    But I would suggest that there is something to what Stiglitz is saying. It’s becoming increasingly apparent that a plutocratic class has emerged in this country and that many of them benefit greatly by their rent-seeking manipulation of the political system.

    Billionaires such as Warren Buffett and George Soros spend millions to lobby Congress in favor of tax laws and regulations from which they personally benefit. The working and middle classes have no such influence. Multi-millionaire farmers and ethanol producers exercise their political influence to enrich themselves at the expense of consumers. The list goes on and on. · Apr 12 at 2:44pm

    The list could, indeed, go on. Moreover, the growth of crony capitalism is and must be proportionate to the extent of federal regulation. The regulated will always go all out to capture the regulator. My quarrel with Stiglitz is that his account of this phenomenon has all of the subtlety of a comic book. Raise taxes to New Deal levels, he thinks, and it will all go away. Alas, he has nothing against Buffett, Soros, and the ethanol producers, and he wants more regulation.

    • #2
    • April 13, 2011, at 2:53 AM PDT
    • Like
  3. Profile Photo Member
    Paul A. Rahe

    The list could, indeed, go on. Moreover, the growth of crony capitalism is and must be proportionate to the extent of federal regulation. The regulated will always go all out to capture the regulator. My quarrel with Stiglitz is that his account of this phenomenon has all of the subtlety of a comic book. Raise taxes to New Deal levels, he thinks, and it will all go away. Alas, he has nothing against Buffett, Soros, and the ethanol producers, and he wants more regulation. · Apr 12 at 2:53pm

    I suspect Stiglitz is quite comfortable with a Soros or a Buffett. The Koch brothers might be another matter.

    • #3
    • April 13, 2011, at 2:56 AM PDT
    • Like
  4. Paul A. Rahe Contributor
    Paul A. Rahe
    Kenneth

    Paul A. Rahe

    The list could, indeed, go on. Moreover, the growth of crony capitalism is and must be proportionate to the extent of federal regulation. The regulated will always go all out to capture the regulator. My quarrel with Stiglitz is that his account of this phenomenon has all of the subtlety of a comic book. Raise taxes to New Deal levels, he thinks, and it will all go away. Alas, he has nothing against Buffett, Soros, and the ethanol producers, and he wants more regulation. · Apr 12 at 2:53pm
    I suspect Stiglitz is quite comfortable with a Soros or a Buffett. The Koch brothers might be another matter. · Apr 12 at 2:56pm

    He would foam at the mouth.

    • #4
    • April 13, 2011, at 3:07 AM PDT
    • Like
  5. Profile Photo Member

    To give one revolting example: in 2009, General Electric’s top tax lawyer literally went down on his knees to plead for a change in tax regulations from Charlie Rangel.

    Rangel gave GE what they wanted. The following month, GE Chairman Jeffrey Immelt and Charlie Rangel appeared together to announce GE’s donation of $30 million to New York City schools, including $11 million to schools in Rangel’s district.

    Subsequently, Immelt has become a senior economic adviser to Barack Obama.

    • #5
    • April 13, 2011, at 3:09 AM PDT
    • Like
  6. raycon and lindacon Inactive

    I submit that there is a logarithmic relationship between the size of any institution and the corruption therein. As I have said in other posts, these conversations are becoming nothing more than a tautology. Has anyone got a strategy that might work in shrinking the size of government? Since the GOP has proven inept, even cowardly, in it’s inability to starve the beast, how do we accomplish it on our own?

    This is not a rhetorical question. The budget events now moving along make it clear to me that if I have another 50 years, setting some kind of modern age record, I will still not see any meaningful improvement.

    Regarding the R word… are we there yet? are we there yet? are we there yet? are we there yet?

    • #6
    • April 13, 2011, at 3:27 AM PDT
    • Like
  7. Paul A. Rahe Contributor
    Paul A. Rahe

    My opinion — and I suspect on the basis of past exchanges that Kenneth may agree with me — is that we need to restore constitutional government by confining the federal government to its proper sphere. Decentralization would help a great deal. At the state level, we can fight corruption: it is a sphere within our reach. At the federal level, we are outmatched. Kenneth’s comments above regarding Jeffrey Immelt of GE and the Obama administration are apt.

    • #7
    • April 13, 2011, at 3:41 AM PDT
    • Like
  8. Profile Photo Member
    Paul A. Rahe: My opinion — and I suspect on the basis of past exchanges that Kenneth may agree with me — is that we need to restore constitutional government by confining the federal government to its proper sphere. Decentralization would help a great deal. At the state level, we can fight corruption: it is a sphere within our reach. At the federal level, we are outmatched. Kenneth’s comments above regarding Jeffrey Immelt of GE and the Obama administration are apt. · Apr 12 at 3:41pm

    Correct. Stiglitz argues for more federal power; we argue for less.

    • #8
    • April 13, 2011, at 3:46 AM PDT
    • Like
  9. KC Mulville Inactive

    Let’s address one distinction worth noting.

    Stiglitz isn’t claiming that the super-rich are taking money from the poor, or that government is taking tax money from the lower class to build up the upper class. That would be easily disproved, since the bottom half doesn’t pay any taxes at all.

    What Stiglitz is saying is that the top 1% aren’t paying what Stiglitz considers their fair share. But how do we reckon “fair share?” See how he presents his statistic. His argument trades on the premise that the percentage of the population should take in somewhere near that percentage of the wealth, which is … ridiculous. Does anyone think that ten percent of the population should get ten percent of the wealth? Then why would the disparity between the population percentage and their wealth percentage disturb anyone?

    Stiglitz isn’t arguing that the rich are taking from us; he’s arguing that the rest of us aren’t taking enough from them. That’s the same premise behind theft: we need money, they have it, so let’s take it.

    • #9
    • April 13, 2011, at 4:16 AM PDT
    • Like
  10. Bereket Kelile Member
    Bereket Kelile Joined in the first year of Ricochet Ricochet Charter Member

    The zero-sum game thinking reliably leaks out of the column by Stiglitz. He says that the lower taxes are the reason the top 1% are “taking in” 25% of the country’s income and to me that sounds like he’s saying that they’re taking an unfairly large chunk of the fixed pie of “income” in a year. It’s the kind of static, dismal, deserted-island-rationing mentality that Jonah was talking about on the roundtable podcast.

    • #10
    • April 13, 2011, at 4:18 AM PDT
    • Like
  11. AngloCon Inactive
    raycon: Has anyone got a strategy that might work in shrinking the size of government?

    We are squeezed in a ratchet. It must be released, or it must be shattered. We tried electoral politics. Press one for pause or two for tighten. Experience elightens. Click.

    Confused, but more certain, we’ve stared about. Far too long, fearing the answer. Dare we say? There are words one may not utter. Agree, again, to cast a ballot. Press one for tighten or two for further still. Click.

    Soros and his ilk love this game. National governments outgrow nations. International solutions. Davos, perhaps, a summer palace? Click.

    Plutocrats don’t gain from freedom. If I’m at liberty to chart my course, how might they control my worth. I don’t buy their junk. I don’t watch their television. I couldn’t possibly care less what any of them think of me. Their only control is total control. Take by force. Of course. Click.

    Stiglitz and Krugman, they’ll champion my cause. Mainline brotherhood. Diversity means we’re all the same. In need of one solution. Click.

    Yes, there is a strategy. Everyone knows a strategy. Are your willing to deploy?

    • #11
    • April 13, 2011, at 4:26 AM PDT
    • Like
  12. Standfast Inactive

    I agree, we need to confine “the federal government to its proper sphere.” Not only could we fight corruption better, but we could keep taxes lower, as a state legislator would probably be more easily influenced than a 30 year member of the U.S. House of Representative is in Washington.

    The question, obviously, is how do we go about doing that? It is doubtful it will ever happen from the top down. Washington, the mother of all echo chambers, and its inhabitants, are too distant from the people. So how do we do it from the bottom up?

    My hope is that conservatives, and their libertarian friends, can gain control of more and more state houses and governorships. At some point in time, I think a consortium of states could stand up to Leviathan and force the federal government back into its proper place.

    At least that is my hope.

    • #12
    • April 13, 2011, at 4:29 AM PDT
    • Like
  13. flownover Inactive

    If evolution has reduced the percentage of the income earners in the country then it must work. Natural winnowing is just that. Redistributive thoughts are contrary to many proven systems that it doesn’t work on any levels. And when it’s confined to the intellectual, it becomes vicious. To idealize and try to quantify this change is hopeless. Trying to eat the rich,like a snake swallowing it’s tail, ends poorly.

    • #13
    • April 13, 2011, at 5:27 AM PDT
    • Like
  14. Paul A. Rahe Contributor
    Paul A. Rahe
    Standfast: I agree, we need to confine “the federal government to its proper sphere.” Not only could we fight corruption better, but we could keep taxes lower, as a state legislator would probably be more easily influenced than a 30 year member of the U.S. House of Representative is in Washington.

    The question, obviously, is how do we go about doing that? It is doubtful it will ever happen from the top down. Washington, the mother of all echo chambers, and its inhabitants, are too distant from the people. So how do we do it from the bottom up?

    My hope is that conservatives, and their libertarian friends, can gain control of more and more state houses and governorships. At some point in time, I think a consortium of states could stand up to Leviathan and force the federal government back into its proper place.

    At least that is my hope. · Apr 12 at 4:29pm

    What you describe may turn out to be necessary.

    • #14
    • April 13, 2011, at 7:09 AM PDT
    • Like
  15. Paul A. Rahe Contributor
    Paul A. Rahe
    KC Mulville: Let’s address one distinction worth noting.

    Stiglitz isn’t claiming that the super-rich are taking money from the poor, or that government is taking tax money from the lower class to build up the upper class. That would be easily disproved, since the bottom half doesn’t pay any taxes at all.

    What Stiglitz is saying is that the top 1% aren’t paying what Stiglitz considers their fair share. But how do we reckon “fair share?” See how he presents his statistic. His argument trades on the premise that the percentage of the population should take in somewhere near that percentage of the wealth, which is … ridiculous. Does anyone think that ten percent of the population should get ten percent of the wealth? Then why would the disparity between the population percentage and their wealth percentage disturb anyone?

    Stiglitz isn’t arguing that the rich are taking from us; he’s arguing that the rest of us aren’t taking enough from them. That’s the same premise behind theft: we need money, they have it, so let’s take it. · Apr 12 at 4:16pm

    Yours is a point well taken.

    • #15
    • April 13, 2011, at 7:14 AM PDT
    • Like
  16. Paul A. Rahe Contributor
    Paul A. Rahe
    bereket kelile: The zero-sum game thinking reliably leaks out of the column by Stiglitz. He says that the lower taxes are the reason the top 1% are “taking in” 25% of the country’s income and to me that sounds like he’s saying that they’re taking an unfairly large chunk of the fixed pie of “income” in a year. It’s the kind of static, dismal, deserted-island-rationing mentality that Jonah was talking about on the roundtable podcast. · Apr 12 at 4:18pm

    Yes, even Nobel Prize-winning economists stray into static thinking. There is no appreciation for the manner in which the Reagan tax cuts laid the groundwork for the technological dynamism and the productivity gains of the last quarter century. There is also no appreciation for the manner in which the profound and continuing decline in the price of computing power opened up vistas for all of us. Stiglitz presumes that the genuine purchasing power of the dollar remained unchanged — as if a dollar earned in 2011 could buy no more than a dollar earned in 1986.

    • #16
    • April 13, 2011, at 7:21 AM PDT
    • Like
  17. Profile Photo Member

    I keep coming back to the question of whether there is, in fact, a super-wealthy class that has to a large extent acquired that wealth through political influence. I think the answer is clearly in the affirmative. The examples are manifold.

    The irony is that the most prominent members of that class are part of the Democrat fold, but the little guy still believes that the GOP is the party of the uber-rich.

    And the political peril is that as the standard of living of the overwhelming number of Americans continues to decline, we’ll see a vicious backlash – directed not at the actual malefactors, but against conservative ideas and sound fiscal policies.

    • #17
    • April 13, 2011, at 7:33 AM PDT
    • Like
  18. Paul A. Rahe Contributor
    Paul A. Rahe
    Kenneth: I keep coming back to the question of whether there is, in fact, a super-wealthy class that has to a large extent acquired that wealth through political influence. I think the answer is clearly in the affirmative. The examples are manifold.

    The irony is that the most prominent members of that class are part of the Democrat fold, but the little guy still believes that the GOP is the party of the uber-rich.

    And the political peril is that as the standard of living of the overwhelming number of Americans continues to decline, we’ll see a vicious backlash – directed not at the actual malefactors, but against conservative ideas and sound fiscal policies. · Apr 12 at 7:33pm

    It is possible that there will be such a backlash, but I think unlikely. And I do not think the class you have identified especially large (except on Wall Street). The story with figures like Warren Buffett is that those who have genuinely earned great wealth have to involve themselves in politics for the sake of self-protection. It has always to some degree been true. As the administrative state grows, it becomes ever more true.

    • #18
    • April 13, 2011, at 7:46 AM PDT
    • Like
  19. Cas Balicki Inactive
    Paul A. Rahe It is possible that there will be such a backlash, but I think unlikely. And I do not think the class you have identified especially large (except on Wall Street). The story with figures like Warren Buffett is that those who have genuinely earned great wealth have to involve themselves in politics for the sake of self-protection. It has always to some degree been true. As the administrative state grows, it becomes ever more true. · Apr 12 at 7:46pm

    Prior to their anti-trust prosecution Microsoft had no lobbyists in Washington. The number I heard that they now have working for them runs into hundreds. I don’t want to jump to any conclusions, but this may speak to why lobbyists command the fees they do.

    • #19
    • April 13, 2011, at 9:06 AM PDT
    • Like
  20. Profile Photo Member

    If Stiglitz’s premise is correct, who does he think is going to be influencing all of his desired regulations?

    • #20
    • April 13, 2011, at 10:36 AM PDT
    • Like
  21. ShellGamer Member
    ShellGamer Joined in the first year of Ricochet Ricochet Charter Member

    The factual error lies not only in assuming a static economic pie, but also in assuming a static 1%. Where did Stiglitz get these numbers? Tax data reports income when it is recognized, not earned. A man can spend his lifetime building a successful business without ever being in the 1%, but then join for a year when he sells and never be in the 1% again.

    The principle error lies in the failure to define terms. What makes an income/wealth distribution “fair?” Stiglitz doesn’t say. I say, if the process is fair, then the outcome, no matter how disparate, is fair. If the process isn’t fair, you should change the process, not the results. We won’t fix what’s wrong with baseball by having the Yankees forfeit two games to each of their divisional opponents. Taking from the rich is the equivalent approach to inquality.

    • #21
    • April 14, 2011, at 7:36 AM PDT
    • Like

Comments are closed because this post is more than six months old. Please write a new post if you would like to continue this conversation.