Saturday, April 4, 2009

Capitalism is the worst...

The following post is a response to an article by Paul Krugman of the New York Times, which explores economic inequality in the United States. While he attempts to look at the "big picture" causes of this trend toward economic disparity, his conclusions are self-deluding at best. I have included excerpts from Krugman's article throughout, but lest you think that I am taking it out of context, please feel free to read it before you proceed to read my post.

This was indeed an interesting read, and I would like to take some time to analyze this piece. Krugman seems to know beyond any reasonable doubt in his mind that he not only knows the cause of economic inequality, but the cure as well. Let’s take this one piece at a time and see if we can’t find some holes in his argument.

During the introduction of the tracking chart in this article, Krugman makes the following statement:

“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 had to wonder who these economists were that he cited, since the source of information is always relevant to an argument. Had he cited Bill Maher or Rush Limbaugh, I’m sure we would have raised an eyebrow. Even using Robert Nozick or John Rawls, would have been cause for pause given the fact that his article is centered on economics and policy. The problem is that no one has ever heard of Piketty or Saez, so for most people it just reads, “Economist X and Y.”

A quick google search reveals that Piketty has actually written several books on economics, or more precisely, on economic inequality and redistributive policy. Here are a few titles he penned:

Unequal Democracy: The political Economy of the New Gilded Age
Rogue Economics: Capitalism’s New Reality
Social Mobility and Redistributive Politics

And the list goes on.
In the introduction of his book, The Economics of Rising Inequality, Piketty writes, “Capital market imperfections make inequalities more persistent, this phenomenon may lead to multiple steady states. A high inequality society will remain so precisely because it redistributes less.”

Okay, I can live with Krugman sighting a socialist since I’m sure his second source is on the other side of the political spectrum. Let’s see... Saez is a professor of economics at UC Berkeley, so I’m sure he’s to the right of Piketty. Here is a little excerpt from an article they wrote together called, Response by Thomas Piketty and Emmanuel Saez to: The Top 1% . . . of What? By ALAN REYNOLDS:

“The reduction in taxes at the top since 2001 has mechanically exacerbated the discrepancy in disposable income between the rich and the rest of us. Thus, it is obvious that the progressive income tax should be the central element of the debate when thinking about what to do about the increase in inequality. Even conservatives like Alan Reynolds would agree and that is why they prefer to dismiss the facts about growing income inequality rather than face the debate on income tax progressivity at a time of growing economic disparity.”

Okay, so maybe Krugman just got off on the wrong foot with his sources. Let’s see where he goes from here. Krugman talks about his experience growing up in the 60s in this article, and it is a time it sounds like he wishes to return. (If you didn’t know already, I’m sure by this following statement you can assume that Krugman is not black.) He says, “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.” Ah yes, basic values that Krugman cherishes like male female marriage, and restricted abortion.

Do any of you buy that for a second? I’m not saying Krugman is lying to us here, only that he is lying to himself. His memory is selective to say the least. He remembers what he wants, he remembers the best parts of his growing up, he even goes so far as to recreate the cause for those good times; unions, high minimum wages, and progressive taxes.

Krugman continues, “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 – even the rising inequality of Thatcherite Britain was a faint echo of trends here.”

But did inequality rise in Britain under Thatcher? Depends on who you ask I suppose. David Brooks, a man of the right I will admit, points out that, “Some economists believe we should reduce inequality by restructuring the economy — raising taxes on the rich and redistributing money to the poor. That's fine, but it won't get you very far. In Britain, Gordon Brown has redistributed large amounts of money from rich to poor regions, but regional inequality has increased faster under the current government than under Margaret Thatcher.” (This is from Brooks’ article, Of Love and Money. A good read I might add.)

I believe the real question is this: What are the goals of the right vs those of the left? I would argue that the primary goal of the right is creating wealth, while the primary goal of the left is redistributing wealth. The left’s goal sounds far nobler, however, equality doesn’t tell you much about location does it? Regardless of intentions, the left will not bring the poor’s standard of living up; rather they will bring everyone else down. Everyone on the bottom economic rung is not an equality I am interested in.

Too often we think of economics like a pie; a few have big slices, a few have little slices, and everyone else has middle-sized slices. If we just took a little pie from the people with big slices and gave it to the people with little slices, we would all have an equal sized slice right? I wish that was the case. However, when you knock down the people who are actually making the pie and giving themselves the biggest piece, they stop making so much pie. In the end we all end up with shriveled pieces, and the incentive to reach for a bigger slice no longer exists. By no means am I advocating total laissez-faire capitalism, but the dangers of redistributive policy need to be addressed.

Let me just say before I go on that I believe Krugman is an intelligent, well-intentioned person. While I don’t agree with his ideas, I do not question his motives. I have a passionate belief that guides me in disagreements. This belief is this: The people with whom differ are either evil, ignorant, or very smart but have simply arrived at a different conclusion then me. I try to assume that latter. One can assume from the following that Krugman does not share this belief. For Krugman, conservativism is THE irrefutable problem with our system. It is the cause for not only economic inequality, but also for the political partisanship that is preventing us from making progress. He writes, “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.”

Really? Conservatives are at the heart of the bitter partisanship that characterizes politics today? Sure Rush and Hannity say some pretty stupid things, but they are just windbag commentators. Meanwhile you have the head of the DNC saying that conservatives don’t care about kids going to bed hungry, and Barney Frank calling Justice Scalia a homophobe. Think about it for a moment; conservatives (at least conservative that are actually voted in to an office to speak for the party) tend to attack policy, while liberals attack the person postulating the policy. I would accept the argument that both conservatives and liberals are too partisan, but I don’t see how anyone could look at the two groups objectively and conclude that the conservatives are the real bomb throwers.

In the end, I think Krugman makes a good emotional plea for economic reconstruction, but I don’t see much in the way of rational support for this plea. Most people would like to see a measure of economic equality, but how much can you have without destroying the economic stability of the country? Again, I don’t question his intentions, but I do question his logic. We don’t have to like capitalism, but we better have an alternative that can actually work before we throw it out. To paraphrase Winston Churchill, capitalism is the worst form of economics, except for all others that have been tried.

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