On March 9, 2014, Paul Krugman writes in The New York Times:
Most people, if pressed on the subject, would probably agree that extreme income inequality is a bad thing, although a fair number of conservatives believe that the whole subject of income distribution should be banned from public discourse. (Rick Santorum, the former senator and presidential candidate, wants to ban the term “middle class,” which he says is “class-envy, leftist language.” Who knew?) But what can be done about it?
The standard answer in American politics is, “Not much.” Almost 40 years ago Arthur Okun, chief economic adviser to President Lyndon Johnson, published a classic book titled “Equality and Efficiency: The Big Tradeoff,” arguing that redistributing income from the rich to the poor takes a toll on economic growth. Okun’s book set the terms for almost all the debate that followed: liberals might argue that the efficiency costs of redistribution were small, while conservatives argued that they were large, but everybody knew that doing anything to reduce inequality would have at least some negative impact on G.D.P.
But it appears that what everyone knew isn’t true. Taking action to reduce the extreme inequality of 21st-century America would probably increase, not reduce, economic growth.
Let’s start with the evidence.
It’s widely known that income inequality varies a great deal among advanced countries. In particular, disposable income in the United States and Britain is much more unequally distributed than it is in France, Germany or Scandinavia. It’s less well known that this difference is primarily the result of government policies. Data assembled by the Luxembourg Income Study (with which I will be associated starting this summer) show that primary income — income from wages, salaries, assets, and so on — is very unequally distributed in almost all countries. But taxes and transfers (aid in cash or kind) reduce this underlying inequality to varying degrees: some but not a lot in America, much more in many other countries.
So does reducing inequality through redistribution hurt economic growth? Not according to two landmark studies by economists at the International Monetary Fund, which is hardly a leftist organization. The first studylooked at the historical relationship between inequality and growth, and found that nations with relatively low income inequality do better at achieving sustained economic growth as opposed to occasional “spurts.” The second, released last month, looked directly at the effect of income redistribution, and found that “redistribution appears generally benign in terms of its impact on growth.”
In short, Okun’s big trade-off doesn’t seem to be a trade-off at all. Nobody is proposing that we try to be Cuba, but moving American policies part of the way toward European norms would probably increase, not reduce, economic efficiency.
At this point someone is sure to say, “But doesn’t the crisis in Europe show the destructive effects of the welfare state?” No, it doesn’t. Europe is paying a heavy price for creating monetary union without political union. Butwithin the euro area, countries doing a lot of redistribution have, if anything, weathered the crisis better than those that do less.
But how can the effects of redistribution on growth be benign? Doesn’t generous aid to the poor reduce their incentive to work? Don’t taxes on the rich reduce their incentive to get even richer? Yes and yes — but incentives aren’t the only things that matter. Resources matter too — and in a highly unequal society, many people don’t have them.
Think, in particular, about the ever-popular slogan that we should seek equality of opportunity, not equality of outcomes. That may sound good to people with no idea what life is like for tens of millions of Americans; but for those with any reality sense, it’s a cruel joke. Almost 40 percent of American children live in poverty or near-poverty. Do you really think they have the same access to education and jobs as the children of the affluent?
In fact, low-income children are much less likely to complete college than their affluent counterparts, with the gap widening rapidly. And this isn’t just bad for those unlucky enough to be born to the wrong parents; it represents a huge and growing waste of human potential — a waste that surely acts as a powerful if invisible drag on economic growth.
Now, I don’t want to claim that addressing income inequality would help everyone. The very affluent would lose more from higher taxes than they gained from better economic growth. But it’s pretty clear that taking on inequality would be good, not just for the poor, but for the middle class (sorry, Senator Santorum).
In short, what’s good for the 1 percent isn’t good for America. And we don’t have to keep living in a new Gilded Age if we don’t want to.
Paul Krugman is still meandering with a call for redistribution of wealth as THE solution to economic inequality.
The REAL problem, which is the cause of the accelerated growth of economic inequality, is that the system, as presently structured, empowers a narrow group of Americans to CONCENTRATE OWNERSHIP of wealth-creating, income-producing capital assets––the non-human factor of production (primarily productive structures, machines, tools, super-automation, robotics, digital computerized operations, etc.). Productive capital is non-human and is the result of technological progress, which never ceases to march forward as it makes jobs in every sector of the economy more scarce.
Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment––thus the political focus on job creation and redistribution of wealth rather than on full production and broader capital ownership accumulation. This is manifested in the belief that labor work is the ONLY way to participate in production and earn income. Long ago that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Physical productive capital provides not less than 90 to 95 percent of the input. Full employment as the means to distribute income is not achievable. When capital workers (productive capital owners) replace labor workers (non-capital owners) as the principal suppliers of products and services, labor employment alone becomes inadequate. Thus, we are left with government policies that redistribute income in one form or another.
Binary economist Louis Kelso argued that the Keynesian model (the model supported by Paul Krugman, President Obama and his economist advisors) fails to recognize that “when capital workers (owners) replace labor workers as the major suppliers of goods and services, labor employment alone becomes inadequate because labor’s share of the income arising from production cannot provide the progressively better standard of living that technology is making possible. Labor produces subsistence at best. Capital can produce affluence. To enjoy affluence, all households must engage to an increasing extent in capital work.”
Rather than advocate for broader private sector ownership with full voting participation and full dividend payouts of the earnings of corporations, Krugman’s JOBS ONLY and redistributive proposals focus fosters class conflict without realizing that the wealthy are wealthy because they own wealth-creating, income-producing capital assets and the poor are poor because they are effectively propertyless in terms of owing capital assets. The result is policies are enacted that behold the poor and middle class to government dependency supported by redistributive tax extraction and national debt.
Paul Krugman suffers from an obviously narrow and unrealistic mindset that is driving America to welfare state status. This mindset permeates the highest levels of academia and every level of education, from the time a child is first exposed to the educational system. In turn, such mis-education of parents and children totally ignores private property ownership of all non-human “means of production” as an increasingly relevant means by which the economy can both grow faster toward general prosperity and every member of society could legitimately earn a decent living in the future with more and more time to engage in what Aristotle called “leisure work,” producing without material compensation “the goods of civilization” and solve problems demanding uniquely human creative capacities beyond the creative capacity of computers, robots and other “energy slaves that are replacing the need for human “toil” labor.
As long as working people are limited by earning income solely through their labor worker wages, they will be left behind by the continued gravitation of economic bounty toward the top 1 percent of the people that the system is rigged to benefit. Working people and the middle class will continue to stagnate, resulting in a stagnated consumer economy.
There is ONLY ONE viable hope for creating consumer demand and it is NOT JOBS! The Job is DYING and with it our economy, while capital ownership for the wealthy ownership class is flourishing.
Those who address economic inequality and advocate for economic justice should be sensitive to the systemic barriers in today’s tax laws, Federal Reserve policies and Wall Street financing practices that have enabled the 400 most wealthy Americans to have acquired more ownership of productive capital than the bottom 150 million Americans combined. The ownership gap between the top 1 percent and the bottom 90 percent continues to widen each year. Is it any wonder that a growing number of capital-less citizens vote each year for those politicians advocating government programs that provide social insurance benefits through redistributive tax extraction and incurred national debt?
If you reject broadened individual private sector ownership of the FUTURE then you will remain OWNED and controlled by others as a wage or welfare slave. It bears repeating that wealthy people are wealthy because they OWN, wealth-creating, income-producing capital assets. The reality is that labor input is becoming exponentially less necessary as humans are replaced by increasingly more productive non-human means of production that produce income for its owners. There will always be less and less human labor input as technology advances and non-human means replace the need for human labor.
There is a market-based alternative system that is becoming known as The JUST Third Way (http://foreconomicjustice.org/?p=5797). It advocates a “solution” called “The Capital Homestead Act” (http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm), a 21st century updating of President Lincoln’s land-based Homestead Act of 1862. Paul Krugman and other Keynesian economists should carefully study these reforms, none of which violate the property rights of today’s capital owners.
http://www.nytimes.com/2014/03/10/opinion/krugman-liberty-equality-efficiency.html?_r=0
