The Income Race

by Russ Roberts on April 1, 2007

in Inequality

Paul Krugman foresees an increasing left-leaning electorate. The cause?

The main force driving this shift to the left is probably rising
income inequality. According to Pew, there has recently been a sharp
increase in the percentage of Americans who agree with the statement
that “the rich get richer while the poor get poorer.”

Could be. Could be that there really is a "sharp" increase in that percentage. But should there be, Paul? Should Americans agree with that statement? Is it true? Do the rich get richer and the poor get poorer? I know it sounds catchy, but is it true? I don’t think Paul Krugman believes the statement is true that for a minute. I think he knows that the data that support that claim are unreliable. But he ignores the issue of whether it’s true and goes on:

Interestingly,
the big increase in disgruntlement over rising inequality has come
among the relatively well off — those making more than $75,000 a year.

The implication is that even the relatively comfy, those making $75,000 a year or more, have come to believe that the system is rigged against them. But again, is it true or just something people believe after hearing it so many times? Whether you are rich or poor, no matter how much they make, there’s no way you can have any feel for what’s really going on in the income distribution. Opinion polls on inequality tell you what’s going on in the media as opposed to what’s going on in the real world.

Indeed,
even the relatively well off have good reason to feel left behind in
today’s economy, because the big income gains have been going to a
tiny, super-rich minority.

Ah, a fact. Or at least an alleged fact. Krugman thinks those over $75,000 people are onto something. Maybe not that the rich are getting richer and the poor are getting poorer but something close enough, "the big income gains have been going to a tiny super-rich minority."

Enough hyperbole for you? I guess he could have written "the enormous, gigantic, income gains have been going to a teeny tiny miniscule super-duper rich minority."

On the face of it, it’s a ludicrous statement. Of course, the "big" gains can’t go to everyone. They have to go to a minority rather than a majority. If they went to a majority they wouldn’t be the big gains, they’d be the typical gains.

And as I have written before, the evidence for this more modest claim is grossly misleading.

But the implication is that if I’m doing fine, even if my income is growing, I get resentful if I see that the income of others is growing a lot faster than mine. Do you feel that way? When you read about CEO’s making a killing or Alex Rodriquez or Oprah or Jennifer Hudson making a ton of money, do you get angry and resentful?

Recently, LeBron James’s 35,000 square foot house was in the news:

LeBron James
35,440-square-foot house under construction in nearby Bath Township is
shaping up as a castle fit for a king — with a theater, bowling alley,
casino and barber shop.

…..

A first-floor master suite, which includes a two-story walk-in
closet, will be about 40 feet wide and 56 feet long — bigger than half
the houses in Bath Township.

The house has a dining hall,
roughly 27 feet by 27 feet, a "great room" at 34 feet by 37 feet and a
bigger, two-story "grand room," according to the Akron Beacon Journal, which reported on the blueprints.

The "family foyer" off the six-car garage near the elevator will be
dwarfed by a "grand foyer" inside the front entrance with a sweeping,
divided staircase leading to four second-story bedrooms. An outer wall
will feature a limestone sculpture — a bas-relief of LeBron’s head,
wearing his trademark headband.

Why is this a news story? Because people find it interesting. Do they resent it? Do you resent it? Do you resent that LeBron James whose only skill in life involves a basketball has received an enormous increase in income. He didn’t start off rich. He’s a perfect example of what’s wrong with the standard analysis of the gains going to the super-rich. LeBron’s salary catapulted him into the category of super-rich. He wasn’t rich to start with. His income gains help create the super-rich category.

Do you resent it? Do you resent the fact that he can entertain millions with his skills?

LeBron James is doing much better financially than say, Julius Erving did when he played or even more dramatically, Bob Cousy, because James has had the good fortune to come of age at a time when America is much wealthier and the demand for basketball talent has skyrocketed while the supply has only increased modestly. True, he does what he does very well. But had he been born 30 years ago or 50 years ago, he’d make much less money. Does that push you to the left? Should it?

Ironically, the wealth of James and his extravagant house are generally a benefit rather than a cost for most Americans. Most Americans love the idea of extravagance. They don’t get upset about James’s house. They want to gawk at it. They want to see it featured in Architectural Digest or on television. If anything, James’s wealth provides even more entertainment, not the resentment that Krugman thinks is the source of our political views.

Be Sociable, Share!

Comments

comments

Add a Comment    Share Share    Print    Email

{ 50 comments }

Stephen Reed April 1, 2007 at 11:14 pm

I would love to see Dr. Krugman and all the pundits on the left comment on this household income data:

Here is the relevant data to see if people's lives are really improving
——————————————-
In 2004 there were 18,928,000 households that earned above $100,000

In 2005 there were 19,674,000 households that earned above $100,000. 746,000 new households surpassed the $100,000 in income mark vs. the previous year, an increase of 3.94%
——————————————–
In 2004 there were 12,694,000 households that earned between $75,000 and $100,000.

In 2005 there were 12,697,000 households that earned between $75,000 and $100,000, an increase of 3,000, for roughly no change. This is ok, since almost 750,000 were added to the $100,000 range, so we can see that they weren't just simply shifted from this income range to the next, leaving everyone else stagnant.

——————————————–
In 2004 there were 20,742,000 households that earned $50,000-$75,000.

In 2005, there were 21,047,000 households that earned $50,000-$75,000, an increase of 305,000, or 1.47%
——————————————–In 2004 there were 16,548,000 households that earned $35,000-$50,000.

In 2005 there were 17,043,000 households that earned $35,000-$50,000, an increase of 495,000, or 3.0%.
——————————————–In 2004 there were 13,148,000 households that earned between $25,000-$35,000.

In 2005 there were 13,040,000 households that earned between $25,000-$35,000, a decrease of 108,000, or .8%.
——————————————-
In 2004 there were 14,395,000 households that earned between $15,000-$25,000.

In 2005 there were 14,184,000 households that earned between $15,000-$25,000, a decrease of 211,000, or 1.47%.
——————————————–In 2004 there were 7,481,000 households that earned between $10,000-$15,000.

In 2005 there were 7,321,000 households that earned between $10,000-$15,000, a decrease of 160,000, or 2.14%.
——————————————–
In 2004 there were 5,554,000 households that earned between $5,000-$10,000.

In 2005 there were 5,719,000 households that earned between $5,000-$10,000, an increase of 165,000, or 2.98%
——————————————–
In 2004 there were 3,854,000 households that earned under $5,000.

In 2005 there were 3,775,000 households that earned under $5,000, a decrease of 79,000, or 2.05%.
——————————————–
The number of households making over $35,000 in 2005 increased by 1.55 million compared to 2004.

The number of households making under $35,000 decreased by 393,000, despite a population increase.
——————————————–
The total number of households increased from 113,343,000 in 2004 to 114,384,000 in 2005, an increase of 1,041,000, or .9%.

Clearly, many people are improving their lives economically in the U.S., people are moving on up the economic ladder. This data shows that most households are improving their situations from 2004 to 2005, contrary to what that Krugman article would imply. Most higher income brackets showed nice increases. Almost all lower income ranges showed decreases. The only one for which this was not the case was the $5,000-$10,000 range, but this is partially offset by the decrease in the under $5,000 catagory, likely implying that many in the under $5,000 catagory shifted up to the $5,000-$10,000 catagory and also perhaps due to new immigrants perhaps being added to this catagory (where immigrants typically start of near the bottom, about 900,000 legal immigrants were added to the U.S. population in 2005).

In my opinion, it is much more important that people have the opportunities to improve their lives and the freedom to keep what they contribute to society. These opportunities are apparent in the data. This is much more important than some version of government forced income equality.

All data gathered from page 38 of the following .pdf file with comprehensive statistics from the U.S. Census:

http://www.census.gov/prod/2006pubs/p60-231.pdf

Patrick April 1, 2007 at 11:32 pm

Russ, I can't believe you're even entertaining Krugman's nonsense. I realize he is the writing for the biggest newspaper in the biggest news market in America but…all the hard facts and real truth are not going to change Krugman's mind nor the majority of New Yorkers. There is a sizable percentage of the population (nearly half) that really and truly believe the Marxist drivel about rich getting richer and poor getting poorer in stark contrast to reality. The fact that Paul Krugman has a basic misunderstanding of economics about the creation of wealth vs. the unfounded premise that there is only a fictional dollar and it can go one place or another (in Krugman's world it goes to the rich and is literally snatched from the hands of a poor person) makes any debate moot. They (Krugman et al….fill in the blank with your own US socialists) think that the only solution is redistribute the wealth, allow the government to control prices, wages, resources, health care and the like and won't cease their relentless campaign to make that a reality. Mr. Reed's data is readily available and could have been pulled form the Census website in a matter of moments. The fact that Krugman and his ilk wouldn't even bother to look at it says it all.

Ray G April 2, 2007 at 12:12 am

I'd like to see a similar study where people were asked the "rich get richer" question, and were also asked for a general belief on "what goes around comes around."

It's been my experience that most people believe, to some degree, that one reaps what they sow, karma, what goes around comes around, etc.

The only two things I remember my own father saying on a regular basis is "what goes around comes around" and "the rich get richer," etc. It occured to me early on that these things were contradictory, but they both serve to make people feel better about their lot in life.

Martin April 2, 2007 at 2:18 am

Stephen,

Using two year old income data is like flying a plane with yesterday's weather forecast.

Jason April 2, 2007 at 4:13 am

Martin,

If you follow the link that Stephen posted, you'll see that the report was issued in August 2006. If you have more recent data, please provide a link.

I assume your hypothesis is that the economy rapidly deteriorated for the non-super wealthy in the last two year.

Chris Meisenzahl April 2, 2007 at 7:31 am

Well done as usual Dr. Roberts, nice work.

golddog April 2, 2007 at 8:02 am

When Krugman asks are "the rich get[ting] richer while the poor get poorer?"; he is not talking about absolute terms. He is asking whether "the rich" are better off than "the poor" in relative terms. He, and almost everyone else, would agree that everyone is better off now than they would have been a hundred years ago.

I thought that the point of Krugman's column was that not every Pareto improvement (an improvement that makes at least one person better off without making anyone worse off) is acceptable. For example, if a parent gives a child a pie, and divides it into three pieces, giving 90% to the first child, 8% to the second child, and 2% to the third child, while it is a pareto improvement (every child is better off than before), one can imagine why the second and third child may not be happy with the distribution.

Krugman is making a similar point with the economy. Of course when dealing with the economy, unlike pie, one does not want a completely equitable distribution either because that would destroy incentives to be productive. Krugman asks for a fairer distribution, while realizing that there are some incentive distortions. He wants an overall increase in utility (assuming that the marginal benefit of each additional dollar a person earns is diminishing) knowing that concomitant with it is a slight loss of efficiency.

Ray April 2, 2007 at 8:13 am

And who is making the straw man this time?

Paul Zrimsek April 2, 2007 at 8:13 am

Of course when dealing with the economy, unlike pie, one does not have either an identifiable person doing the cutting or a focal-point expectation that all the pieces will be the same size. Which renders the analogy worthless.

Lowcountryjoe April 2, 2007 at 8:17 am

Interesting observation that you've touched on: the salaries of professional athletes can only increase if the entertainment value of their output is met with more consumer money spent on the athlete's entertainment output. I highly doubt that the percentage of fan interest in sporting events has grown faster than the percentage change in the population, though I could be wrong. So, if this is indeed true, it should show that the overall real wealth and real income of the median Joe is rising.

And isn't the audience of Krugman the very same people that are supposedly benfitting from such inequality? Yep, way to give back to the community (a slogan for the guilty but a reality put into practice by the entreprenuer)…further dumb down the naive and spread pessimism in spite of rising prosperity.

Matt C. April 2, 2007 at 9:12 am

Who is more likely to be concerned about the disparities between rich and poor? If I can make a leap here I would say that the middle and upper class individuals will be more concerned about the "growing" disparities between rich and poor. Maybe there is a guilt about how well one is doing and it is difficult to see that others "suffer". Working in DC I see quite a few homeless people and I honestly feel for them. In a perfect world I would never want to see people living on the street or having to go to a shelter for food. But the world isn't a utopia, not even in a command economy like the Soviet Union.

But if you look at the poor, who do they hope to be more like? Who are the poor's "heros?" If you ask the poor if there are growing disparities between rich and poor they may agree, but they would not be upset if they were able to come into a lot of money. I think it goes back to the "Freakonomics" and the drug dealers. Poor try to emulate the rich. Poor want to be rock and rap stars or sports stars. It would be interesting to see if you asked the question, is it ok that poor people become rich by sports or art talent? Should that ability be taken away from the poor to reach that upper class status? I would find it hard to believe that any poor or even middle class person would not want the ability to have enough money to do whatever they wanted with it and have a enough left over to live for years without work.

david smith April 2, 2007 at 11:08 am

Pual Krugman: Hack.

Methinks April 2, 2007 at 11:30 am

What bugs me about the “inequality” debate is the implied assumption that there is some “fair and equitable” way to give everyone the same result without changes in behaviour. Why do so many people ignore the nearly 100 years failure of the alternative?

Well, let's look at the alternative for one moment – socialism/communism.
The disparity in income between the highest and lowest is MUCH greater. The bottom 99% live like dogs while the top 1% (the nomenclature) live like kings. Moreover, the coercion required to achieve this "equality" means that we not only have more income disparity but we also lose our liberty too. Over time, lack of investment means that everybody is worse off. But they’re all worse off together (except the nomenclature, who are never worse off), so that makes it okay? So, the trade off is that we would rather all live poorly rather than live well, with some people living even better? I don’t think so.

I came from Soviet Russia and I find that the left here either thinks that I’m lying to them when I tell them what it was like or they think that Americans will be able to “do it right” – that is, Americans won’t be subject to the same human failings that Russians were. Do Americans think that Russians are a different species? Can the left not work out the logic of the need of a minority that collects the goods for redistribution and that this minority will draw and tempt the American Stalins? And the aftermath of communism is seen even after its collapse.

I think that Americans really want equality of opportunity, not necessarily equality of results. People like Krugman are fast losing their academic credibility and gaining a reputations as foaming at the mouth hate mongers. I think we should make an example of Krugman by taking away his tenure, his book profits, his NYT pay and equalizing his income with the middle quintile. Give it a year, and then ask him how he's enjoying himself and how motivated he is. He should be all for that, right?

Adam Malone April 2, 2007 at 1:12 pm

Good point Methinks.

—————————————-

I think it is appropriate that golddog used "pie" as an example above. Because the idea of the economy as a static pie that can only be divided, rather than "increased" or "decreased" is at the root of economic misunderstanding.

Krugman and the liberal media play into greed and jealousy because they are powerful emotions. And powerful emotions sell Newspapers, books, and ad buys.

golddog April 2, 2007 at 1:35 pm

"Because the idea of the economy as a static pie that can only be divided, rather than 'increased' or 'decreased'" is at the root of economic misunderstanding."

In my example the economy was not static. The pie was not a reference to the economy as a whole, but to the level of increase that each person receives. My point was there are situations where everyone benefits (receives an "increase"; also known as a pareto improvement), but may still be considered unsatisfactory.

the invisible pimp hand April 2, 2007 at 1:43 pm

the ecommunist paul krugman is beyond the reach of reason and beneath contempt.

Methinks April 2, 2007 at 2:05 pm

Okay, golddog, but would the less satisfied trade a smaller piece of the pie for no pie at all?

That's the the alternative.

Methinks April 2, 2007 at 2:15 pm

"while realizing that there are some incentive distortions. He wants an overall increase in utility"

Jeez. This is when I wish economists realized that they're actually measuring the daily trade-offs of actual human beings make.

Income is not the only input in utility. Ask people if they would rather do without the, say, ipod but have less disparity between their income and Steve Jobs' or have the ipod and "suffer" the discrepency. People who earn less still benefit from innovations of people for whom the incentive is higher income.

Why is less income disparity between Bill Gates and a random secretary even a goal? Why is giving up efficiency and incentive in the name of destruction of liberty and more difference between the power of the average man and politicians a goal?

And I don't think you'll be giving up a little efficiency. Imagine the amount of capital and energy that will be devoted to rent seeking rather than useful production when the only way to "get ahead" is to be well connected. And it won't be us who suffers. We're already "smart" enough to get ahead. The poor, who depend on the wealthy to create jobs and opportunities will suffer the most.

Krugman should be forced to live in Cuba for a while before he opens his giant trap again.

Heretic April 2, 2007 at 2:18 pm

"In my example the economy was not static. The pie was not a reference to the economy as a whole, but to the level of increase that each person receives. My point was there are situations where everyone benefits (receives an "increase"; also known as a pareto improvement), but may still be considered unsatisfactory."

So what if the pie were far smaller, but distributed more evenly? Would that be a satisfactory result?

Nick April 2, 2007 at 3:29 pm

Golddog's pie analogy isn't a very good one, because none of the little kids had anything to do with making the pie, and hence no real claim on any share of it.

In real life one of the kids would have invested his allowance and his free time in figuring out how to make a pie, and then in actually making it. The "fairness" complaint breaks apart completely because the other little kids show up just as the pie is coming out of the oven (after a long day of spending their allowance on cokes and comic books, and their time playing) and throw a tantrum because they aren't getting their "fair" share.

You can understand how a two year old can look at a pie that someone else invested their time and risked their capital to make and complain about how big their piece is, but I think a mature intellect has to recognize the importance of protecting the first kid's investment in time and capital if you want pie-making to continue.

Of course you can take the analogy a step further and watch as the two little kids who did nothing to make the pie hold a "fair and democratic" vote to decide how much of the pie the first little kid will be allowed to keep. A two thirds majority for "equal division". What could be fairer and more democratic than that?

mellymel April 2, 2007 at 5:05 pm

whatever happened to being thankful for what we have right now instead of worrying about keeping up with the Joneses. And since when does income alone determine the standard of living and all of those intangible, immeasurable things like "happiness" for a household? Obviously the rich are getting richer and the poor are getting richer too. It could be worse.

Alex April 2, 2007 at 9:09 pm

A few things; what is Stephen Reed smoking? I guess he missed the fact that inflation was 3-4% during 2004-2005, and that the increases in income were artificial. Oh yeah, and the census doesn't record income for those making over a million dollars. If you want to get income stats, go to the IRS, they don't whitewash. Hint: Read the NYT article on the relative increases in income. Bottom line; the bottom 90% of the population saw there income decline, thats right, from 2004-2005.

Alex April 2, 2007 at 9:13 pm

Here are the links;
http://www.irs.gov/pub/irs-soi/05in01pl.xls
http://www.irs.gov/pub/irs-soi/04in11si.xls
http://elsa.berkeley.edu/~saez/ (go to the updated March 2007 section). As you will see, the Census data is BS.

Ammonium April 2, 2007 at 9:19 pm

It scares me to death when I see numbers like $75,000 as being rich. I mean, several years ago when I graduated from college the average economics graduate from my school was making $55,000 a year. If your average economics graduate gets married to another average economics graduate that income dwarfs this rich threshold.

Alex April 2, 2007 at 9:23 pm

Oh yeah, a few more links;
http://www.cbo.gov/showdoc.cfm?index=7718&sequence=0

Additionally, the Gini Index has risen to 45, 46, the highest on record.

Stephen Reed April 2, 2007 at 9:26 pm

Alex,

What are you smoking? The census adjusts for inflation. Sucks when the facts contradict your anticapitalist bias.

Alex April 2, 2007 at 10:06 pm

Nope. The census doesn't take into account income over a million a year; sucks when you cherry pick data that would do Stalin proud.

Alex April 2, 2007 at 10:10 pm

WTF? How does pointing out that incomes are stagnant for a lot of the population mean I have an anti-capitalist bias? If you mean that incomes stagnating would lead people to be less supportive of capitalism, then you mean that people in general are anti-capitalist. Pointing out facts doesn't make one biased or not. Unless you are a Bush cultist or with some totalitarian fringe group, where there is no such thing as objectivity and truth.

Stephen Reed April 2, 2007 at 10:35 pm

Alex,

Of what relevance would it be to the data I posted if the Census did not take into account income over a million (sounds like something you completely made up)?

And what do you mean "nope". It says right on the page where I got the data "(Income in 2005 CPI-U-RS adjusted dollars."

Finally, where did I dispute the income inequality statstics, you've really got a screw loose and and axe to grind there bud.

Alex April 2, 2007 at 11:53 pm

You can check how the census divides income categories. It top codes the very top strata, lumping all people making over a million together. Your data only showed for those in the top 5%, not the top .1%. As for "nope", that was regarding accuracy. You should read the CBO reports and IRS data in order to get a coherent picture of the income distribution.

I never said that you disputed income distribution. Don't put words in my mouth. What I said is that your data was not accurate, and that you falsely accused me of being anti-capitalist for putting out facts.

Alex April 2, 2007 at 11:56 pm

As to income over a million, there are two, three hundred thousand households that make that much, and they earn more than half the population. That means that the top .1% of the population takes home more than the bottom 50%. Doesn't that sound a little lopsided to you, to the extent that we are no longer dealing with an actual free market system?

Mr. Econotarian April 3, 2007 at 1:15 am

A culture which gets mad about income inequity is one that will destroy the economy.

Technology enhances the size of returns to skills through productivity multiplication, thus the rich (skilled) do get richer.

Meanwhile whole swaths of humanity are now finally becoming able to join modern market economies (in the US through immigration) and are starting the game with the lowest skills, thus the lowest wages, which is what happened with every US immigration wave.

Income inequity is inevitable in such a situation.

Methinks April 3, 2007 at 8:52 am

Good point, Econotarian (and others).

Without this income inequality, I – and immigrants like me – wouldn't have had the opportunity to work our way up. When we immigrate, we bring our poverty with us. This skews the bottom numbers at least as much as the top number is skewed by Bill Gates and Warren Buffet.

Also, the top 1% don't generally "take home" an income. They CREATE wealth. They aren't getting a bigger portion of the pie. They create the pie. That's a huge difference.

Look at the lot of immigrants in socialist Europe. Look at the unemployment rate. Is this better?

I see that Alex completely ignores the inequality that plagues the alternative to a free market and, like J.K. Galbraith before him, accuses a free market of not being a free market. If the free market isn't free enough for him, then less government meddling, not more will make it freerer. But that's not the recommended solution, is it?

I remember when Galbraith visited the Soviet Union in 1985 and wrote a piece in the New Yorker about how Russia was catching up to the US, as evidenced by how well off the Soviet people were. The grocery stores were empty, but that didn't bother Galbraith. Either blind or stupid – probably both.

Slocum April 3, 2007 at 3:06 pm

"And isn't the audience of Krugman the very same people that are supposedly benfitting from such inequality?"

Ah, no, this is 'neo-populism' or perhaps 'neo-neo-populism' where the evil rich are just that tiny sliver, that top 1% or top 0.1% who need to be soaked. While rest of us (which includes the vast majority of wealthy NY Times readers) get to be part of the resentful, mad-as-hell-and-not-going-to-take it anymore 'poor' (who are getting poorer). It's genius. We're all downtrodden now.

And who are those evil new billionaires? The concentration in a few areas shows that they're people like Page & Brin (Google), Bezos (Amazon), Skoll (eBay), Gates & Ballmer (Microsoft), Jobs (Apple/Pixar), Ellison (Oracle) and various other lower-level tech billionaires and millionaires you've never heard of.

Page & Brin aren't just ripping off us 'regular Americans' with their free service, they're ripping off *everybody* by offering their free service worldwide (those bastards).

And it's simply outrageous what Gates (and Buffet) are doing with their billions — giving it all away to help solve the problems of the world's poor. Is there no limit to how low they'll stoop?

Man, I really used to admire Krugman's pre-NY Times writing (and thinking). What the hell happened?

Alan Reynolds April 3, 2007 at 3:47 pm

Everyone from President Bush to Ben Bernanke keeps comparing recent income data with figures from the stagflationary era of 1979-81 (when stocks, bonds and small business were trashed)and assuming a continuous increase rather than a one-time rise that ended around 1986-88.

The Gini coefficient for disposable income was unchanged at 0.385 from 1988 to 1992. It suddenly spiked to 0.40 in 1993-94, but that was a statistical illusion due to new computerized survey methods that included much higher earnings than before. The Gini index for 2004 was still 0.40. Putting aside the meaningless 1993 break in the data, there has been no change worth mentioning in the distribution of disposable income since 1988 or even 1985.

In the Federal Reserve’s Survey of Consumer Finances, real median income rose 20.7% from 1989 to 2004 among the top 10% of families and by 21% among the poorest fifth. There was likewise no increase in inequality in the Bureau of Labor Statistics’ surveys of consumer expenditures from 1986 to 2004.

That's just a small sampler. If you don't want to read my book (Income and Wealth), just keep an eye out for a forthcoming piece in The Financial Times.

Methinks April 3, 2007 at 4:04 pm

Thanks, Alan. I'll be looking out for both.

M. Hodak April 3, 2007 at 4:12 pm

"Of course you can take the analogy a step further and watch as the two little kids who did nothing to make the pie hold a "fair and democratic" vote to decide how much of the pie the first little kid will be allowed to keep. A two thirds majority for "equal division". What could be fairer and more democratic than that?"

I think this should be an exercise in every elementary school. Have a very small group of kids make something that everyone can share, then have the whole group vote on how it should be shared. That would be an excellent lesson in democracy unconstrained by property rights.

Methinks April 3, 2007 at 4:21 pm

M. Hodak, That's a fabulous idea!

To paraphrase Milton Friedman: It's one thing for 90% of the population to tax itself to help the bottom 10%, but it's a completely different thing when the middle 80% taxes the top 10% to help the bottom 10%.

Alex April 3, 2007 at 10:31 pm

Whats with everyone forgetting their brain at the door? Anyway, here's another try at knocking some sense into the people here. The rich draw income, as well as create it. If I am a CEO of GE, and do nothing, but put in my regular hours, and designate to staff and underlings to run the company, and then take home hundreds of millions in compensation, have I created wealth? No, I just lived off the estate, like a feudal lord.

If you want more inequality, OK. But what that means is that more assets will be in the hands of fewer people, and over time, more income will accrue to fewer people, so that even the prosperous will feel a squeeze. Fine then. But don't claim that as an immigrant you will be better off. Children fair worse in the US than in any other first world country. Our health statistics make us look like a third world autocracy, not like a first world democracy. Class mobility is higher in so-called socialist France and Denmark.

Oh yeah. Why is it that Scandanavia, home of socialism and such, is at the top of lists on globalization, free trade, free market competition and such, while we rank lower. Perhaps it could be that cartelism and oligopolies, which is what the US is getting from deregulation, might just not be free competitve markets.

Alex April 3, 2007 at 10:37 pm

I want a vote; does working at WalMart constitue work? Does working in a field from dawn to dusk constitute work? What the hell do you think value comes from? Some full with an MBA? The fellow does a BS ppt, and thats supposed to be worth something? Tell you what. Lets say the bottom 80% of the US populace stopped working for a little while. How productive would your brave capitalist heroes be then, with not one to buy their stuff, produce it, or exchange it. The capitalist has done some management and thats it. The rest was left to everyone else, but when it comes to payday, the capitalist, being carried by thousands below, thinks he did it himself.

Nadia April 4, 2007 at 2:25 am

Alex,

This is almost paraphrasing Karl Marx. So the workers are entitled to the fair share of the full cost of the produce, right? And CEO's income is not a true labor income, correct? This philosophy clearly proved its efficiency in the Soviet Union.

Methinks April 4, 2007 at 9:16 am

People like Alex have been stunning my family since we escaped the Soviet Union in the 70's. The whole point is that Alex thinks he/she knows what's best for everybody. The best part about him/her is that he/she is completely ignorant of facts. I would respond to all the economics he/she learned from Al Franken, but it would take all day to unravel the stupid – Everything from the CEO, to the difference between zero-sum Scandanavia and the U.S., to the what constitutes a real job and to the differences between a free market economy and Socialism/Communism.

I'll leave it to the likes of Nadia as I am almost paralyzed by the stupid Alex packed into his/her last two posts.

cpurick April 4, 2007 at 12:45 pm

golddog:
"When Krugman asks are "the rich get[ting] richer while the poor get poorer?"; he is not talking about absolute terms. He is asking whether "the rich" are better off than "the poor" in relative terms. He, and almost everyone else, would agree that everyone is better off now than they would have been a hundred years ago."

But Krugman could say the rich are simply getting rich faster than the poor, and he also certainly has the option of pointing out that the poor are free to enrich themselves as well by emulating the rich rather than envying them. I question why Krugman does it this way, and why you don't call him on it.

golddog:
"I thought that the point of Krugman's column was that not every Pareto improvement (an improvement that makes at least one person better off without making anyone worse off) is acceptable. For example, if a parent gives a child a pie, and divides it into three pieces, giving 90% to the first child, 8% to the second child, and 2% to the third child, while it is a pareto improvement (every child is better off than before), one can imagine why the second and third child may not be happy with the distribution."

Your model is not Pareto because the parent comes up short one pie. In the real world the pie is not donated by a discriminating donor/arbiter; instead it is created by people working in voluntary cooperation, and where anyone who wants a bigger piece can get it by helping to make the pie bigger. Again, I'm sure you already recognize this flaw in your premise, yet you choose to ignore it — why?

golddog:
"Krugman is making a similar point with the economy. Of course when dealing with the economy, unlike pie, one does not want a completely equitable distribution either because that would destroy incentives to be productive. Krugman asks for a fairer distribution, while realizing that there are some incentive distortions. He wants an overall increase in utility (assuming that the marginal benefit of each additional dollar a person earns is diminishing) knowing that concomitant with it is a slight loss of efficiency."

Best I can tell, both you and Krugman are Marxists. You're both concerned with the unhappiness of people who have a fundamental misunderstanding about how the whole system works, and you're both willing to appease this unhappiness — rewarding the underlying irrationalities — by punishing the ones who've figured it out.

I wonder if you have any real appreciation for economics at all, beyond its usefulness for rationalizing your socialist agenda. (You, not Krugman — there's little doubt about him.)

cpurick April 4, 2007 at 1:01 pm

Alex:
"The capitalist has done some management and thats it."

Actually, the capitalist has forgone a great deal of consumption, and assumed 100% of the risk.

You talk about the measurement of the capitalist's wealth as if he consumes more than his fair share, while the reality is that most of the capitalist's "wealth" is not decadent luxury and consumption; in fact it's tied up in the ownership of the infrastructure that employs the rest of us.

Additionally, when that process breaks down employees and other resource providers are entitled to full payment for their services right up to the last day, and if necessary the capitalist is obliged to surrender all of his ownership to meet that entitlement.

Finally, in the measure of any capitalist's personal success, be sure to give him equal credit for every failure he endured where his employees were paid anyway, and every opportunity provided to a worker who had no job before meeting the capitalist, and every consumer who lives better simply because of the capitalist's innovations — even where they have never bought anything from the capitalist.

Alex April 4, 2007 at 9:24 pm

Right… Uh, no. Capital these days is increasingly malleable and tangible. If I am a capitalist, I now have much more access to my cash then in the past. As for obligations to employees, what planet are you living on? If I own a company, I can fire employees for any damn thing I like, lay them off before pay day if it helps earnings. If a capitalist wants to do that, fine, but don't say they have any obligations to their employees. They don't, and are totally unaccountable.

Alex April 4, 2007 at 9:34 pm

Hey Methinks; the Soviet Union also worked as a market economy as well. There was much more government regulation, but people had private property (maybe you have amnesia and forgot that), and there were performance incentives, oops, I mean bribes. To make claims about the USSR as being a different economic system from the US is like saying that people from different races are not human beings. That is absolute BS.

As for the worth of work, my point there is that you all think that if someone works at WalMart for 3000 hours, that was nothing, no effort. If the CEO has his staff do a merger deal, he should be paid $100000000 a year. As for the efficiency of the USSR, it got screwed by lack of productivity growth in inputs. That doesn't have to do with incentives. "Socialist" France and Norway have much higher productivity levels than the US does. So, sorry about your USSR rant.

Alex April 4, 2007 at 9:51 pm

Like I said, Scandanavia ranks higher than the US on globalization lists. The US spends $6000 versus under $3500 in the rest of the first world on health care per person, but our infant mortality rates (for white children) are higher than Western Europe's, and we live shorter lives. I wonder why? Oh yea, and the lowest thrid of Britons are healthier than the highest thrid of Americans. Why? Why is it that the best predictor of SAT scores is family wealth, not intelligence.

Why does France have higher productivity levels than the US? Why is male life expectancy higher in Costa Rica than the US, taking into account smoking and obesity? Well, got the answer?

Methinks April 4, 2007 at 9:58 pm

Alex,

Do you know what a "useful idiot" is? You should. Your hero, V.I. Lenin, came up with the term to describe people like you.

Methinks April 4, 2007 at 10:00 pm

cpurick,

your post is so eloquent that I've actually had to print it out and share it. Thank you.

cpurick April 5, 2007 at 1:24 am

Alex:
"If I am a capitalist, I now have much more access to my cash then in the past."

You are not a capitalist until you buy capital with your earnings instead of consuming it. Until then you are just another ignorant Marxist.

Alex:
"If I own a company, I can fire employees for any damn thing I like, lay them off before pay day if it helps earnings."

No, I'm afraid the law requires you to pay them through their last workday. Even if you didn't make a profit, and even if it means you must liquidate all the company's assets to do it. The capitalist takes that risk with everything the company does; his employees, vendors and customers do not. The business owes them — the capitalist has a claim on nothing until they are all paid.

Alex:
"They…are totally unaccountable."
Since the capitalist's money is in the business, his personal vulnerability is obvious.

Previous post:

Next post: