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Friday, August 18, 2006

Is Paul Krugman a Better Economist Than James Tobin?

Andrew Samwick says, in reference to Paul Krugman's latest column:

Paul Krugman on Inequality: Paul Krugman, a highly educated man, leaves himself out of his own column today in "Wages, Wealth, and Politics." ...

I'll forgive him the odd switches between real wages and real wages in manufacturing, as well as the comparisons of wages for one group with income for another group. I'll even agree with him about his (later) discussions of where Republican Eisenhower and Democrat Clinton fit in their respective eras. I'll even forgive him the seemingly obvious point that in the "New Gilded Age," the income gains do seem to be at the high end, refuting his critique of Paulson's first point (under the very reasonable assumption that the top 1 percent is on average "highly educated.")

What always puzzles me about Paul Krugman and his claims about inequality is why he doesn't seem to realize how silly he sounds when he refuses to acknowledge, and take some pride in the fact, that he is part of that top 1 percent. I find it hard to imagine that Paul Krugman's income in 2004 wasn't above $277,000, between his income from his university, his speaking engagements, his books, his columns, and his investments.

Now, does Paul Krugman think that he was just a tool of the "New Gilded Age" politicos? Does he owe his income gains to the people he despises, those nasty Republicans and that ridiculously centrist Clinton? I'd like to know. I suspect that if you asked him why his income grew to the point where he's in the top 1 percent, he would give some long answer, the shorter version of which is that he's "highly educated" and he's not lazy.

And the salient fact about this explanation is that it is accurate. Krugman's about as highly educated as you can get. He's got plenty of skills and occasionally (though not here) a good argument. People like what he does and he gets paid for it. Good for him. But good for Secretary Paulson as well, since Paul Krugman's own experience supports both parts of Paulson's assertion.

I'll do my best to channel Krugman's reaction. Here's what I imagine it would be. First, on the data issue:

The reason I compared wages with incomes in today's column was data availability. You can get manufacturing wages (but not other wages) back to the early 20th century thanks to Historical Statistics, and you can get top percentile income almost as far back thanks to income tax returns (hence Piketty and Saez). The CPS income distribution data, aside from missing the action at the top, only go back to 1947 - after the Great Compression.

Now, on the more substantive point, again, here's my best guess of how Krugman would respond:

The logic seems to run as follows:

1. Krugman advocates policies that would reduce the income of affluent people.

2. But Krugman is an affluent person.

3. Therefore, Krugman is being dishonest.

Huh? Are you dishonest if you want to reduce poverty, but aren't poor yourself, and will probably end up paying taxes to support anti-poverty programs? Are you dishonest if you want the troops to have better body armor, when you aren't yourself serving in Iraq, and will probably end up paying taxes to pay for the armor? Somehow - maybe in some weird perversion of the notion of Economic Man - we're supposed to condemn rather than praise people who advocate policies that are against their personal financial interest.

As for Andrew's question about whether I've earned my income: I think I've earned my place, but it's an aspect of our current economic structure that favored places pay so well. Today's CEOs earn around 10 times as much, compared with the average worker, as CEOs during the postwar boom; that doesn't mean they're better CEOs, it just means the structure of rewards has changed. I'm sure that I earn a lot more than James Tobin did (I use him as an example because of how modest his lifestyle was), but it's not because I'm a better economist; it's the system that has changed.

And what I'm talking about is the system, not whether individuals have earned their places in it. Why is that so hard to understand?

    Posted by on Friday, August 18, 2006 at 03:23 PM in Economics, Income Distribution, Politics | Permalink  TrackBack (1)  Comments (30)

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