Apologies to Paul Krugman

I here plead guilty to interpreting Paul Krugman unfairly.  I’ve long read a passage in this 2002 New York Times Magazine essay by Krugman as being evidence of his endorsement of the common but false belief in zero-sum economics — the belief that Joe can get richer only by making Suzy poorer, and vice-versa.  Economists learn early on that wealth-production in markets in which private property rights are respected is a positive-sum activity: everyone (including each person who is ‘rich’) gets richer only by making others (including ‘the poor’) richer.  Put differently, wealth is not a fixed stock.  It can — and in markets does — grow.  Krugman seemed to deny this fundamental truth.

The offending passage is this one (especially the second quoted paragraph):

Still, you can understand why [Robert] Novak assumed that we were No. 1. After all, we really are the richest major nation, with real G.D.P. per capita about 20 percent higher than Canada’s. And it has been an article of faith in this country that a rising tide lifts all boats. Doesn’t our high and rising national wealth translate into a high standard of living — including good medical care — for all Americans?

Although America has higher per capita income than other advanced countries, it turns out that that’s mainly because our rich are much richer. And here’s a radical thought: if the rich get more, that leaves less for everyone else.

Cafe patron Daniel Kuehn — commenting on this earlier post of mine — convinces me that my interpretation of these passages from Krugman is ungenerous.  The context in which Krugman made the above statements is a discussion of real per-capita G.D.P.  In this context, the ‘distribution’ of any given G.D.P. figure among different persons or income quintiles (or deciles, or whatever breakdown you choose) is a matter of arithmetic.  It is indeed true, arithmetically so, that with any given G.D.P. figure, if (say) the top one-percent of income earners are paid (say) 55 percent of national income, then only 45 percent of national income remains to be paid to the remaining 99 percent of income earners.

So I apologize to Krugman for my being too quick to judge him too harshly in this case.

I do believe, though, that Krugman was inadequately clear on this matter.  Surely he’s aware that one of the most common mistakes that non-economists make about the way economies work is to assume that wealth-production is a zero-sum process.  In the above-quoted passages, he does leave himself open to being misread as accepting that false belief.

Still, I see that my long-held interpretation likely is incorrect, so I retract it, with sincere apologies.

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