Paul Krugman on international trade and inequality:
Paul Krugman talks to Mario Cuomo, Guardian Unlimited (Video): ...Cuomo: How about trade policies, and what level does that play in inequality? And if you talk about trade - please talk, too, about evaluation of currencies and China.
Krugman: OK. Trade is a fairly agonising issue. I will - you know, I've been pretty much a free trader, though not, I think, for the standard reasons. And I'm in favour of it because it's so important to the world's poorest countries. The access to world markets is really the only hope they have of escaping from the direst of poverty.
Now, that said, does trade have an unequalising effect within the US? Yeah, it does. It's probably not the dominant factor in our rising inequality by a long shot. It does not explain the gap between hedge fund managers and high school teachers, but it does somewhat widen the skill differential. The problem is if you just start randomly protecting, then you're going to disrupt this world economy, which is so important.
The point I would make is that the same forces of globalisation that affect the United States affect every advanced country, and yet the collapse of the middle class, the emergence of a new plutocracy is unique to the United States. We can look at Canada, France, Sweden, and see that those countries can cope with global markets while maintaining a decent standard of living for their workers, so can we.
Cuomo: Global union movement, I guess, being diminished as it has been, hasn't helped any on that.
Krugman: Oh, it's enormously important. The collapse of unions, which is not - not an invisible hand phenomenon. It's - I have a comparison in Conscience of a Liberal between Canada and the United States. We had similar rates of unionisation in 1960. We both had around 30% of workers in unions. Canada is still almost as unionised as it was in the 1960s. In the United States, the union movement is a shadow of its former self and that's because the legal environment, essentially - well, Reagan declared open season on union-busting, and there's every reason to believe that strong unions are an important counterweight to the power of employers, not just directly in wage negotiations, but in everything from the setting of CEO salaries to the setting of the political agenda.
Cuomo: [We] tried to get closer to a equitable sharing of wealth is a progressive income tax system, and it seems to me that the public is easily confused about taxes. For a while in the Reagan years, they were convinced that any tax cut was good and any tax increase was bad, and they still believe - most people - that Reagan was a tremendous tax cutter, which he was with the marginal rate, but he raised taxes seven times after that.
Krugman: Right. And he cut income tax rates, but raised payroll taxes and 86% of working Americans pay more payroll taxes than income taxes. So, by and large, if you were a middle-income working American, Reagan had actually raised your taxes. ...
Cuomo: What has impressed me for a long time and I use it sometimes in debates: Reagan raised about $99bn in taxes. Putting aside social security, which he also raised, then Bush Sr had to raise taxes about $90bn because the deficit was so great and the debt was mounting as a result of the tax cuts and the heavy spending on the military by Reagan, and so that's two big tax increases.
Then Bob Rubin convinces President Clinton to start with a big tax increase, all of them at the top, and that was followed by the four best market years in history, 22m new jobs and a $5.4trillion surplus. Can't we argue that at the very least, taxing the super rich is not going to be bad for the country?
Krugman: Oh, look, the postwar generation, going back a bit further, you know, back when we had that socialist Dwight Eisenhower running America, the top tax rate was 91% and that - the 25 years after second world war were the best economy America has ever had.
Cuomo: Also, he's another good illustration, I think - I hope you'll agree - that government is a good thing and a necessary thing and a vital thing. His highway programme was a vital contribution to our progress through an improved economy. Isn't that the case?
Krugman: Yeah, of course. That is an enormous example. Without government action, we'd be fighting stop lights coast to coast, and we'd be a much less productive economy. There are some other areas where I wished we could do the same. In a way, we need an interstate highway programme for broadband internet, and we're not getting it. ...