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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Malarky. Even by that definition, there is some assumption that there exists a “pot” of money allotted to the USA, and that “pot” is divied up by someone, with more going to the rich- therefore less going to the poor. This is hogwash. Just as Russ and Don argue that people on either side of a national border are no different than those on either side of the Carolina line, so too, money is not magically associated with a country. Sure, there are US dollars, and other currencies. But these are merely markers denoting the value created for someone in whatever place the consumer is.Companies sell yogurt in the US and earn dollars, they sell yogurt in Mexico and earn pesos. The wealth is a much more difficult concept to pin down, and value is as well. Stating that there is a “GDP” of a certain country only captures some descriptive paradigm snapshot after the fact, at one moment in time.It says nothing about the nature of wealth and value creation, and who “deserves” how much, nor is it a magical allotment. Nor does it justify Krugman, or DK’s ridiculous assertion that the meaningless ratios mean anything in any real sense. I still don’t “not” have a dollar simply because you have it. This is like the Garfield cartoon where he asserts that eating a whole pie sliced into eight pieces is less calories than eating a whole pie cut into six slices, or the absurd mathematical game wherein the hare can never catch the tortoise.
While I’m hot on the topic, I’ll add this as well. I can’t believe Don fell for this just days after writing about the prosperity pool.
A rising tide does lift all boats. The poor in America have a home, or housing, a car, a cellphone, air conditioning, a TV with several channels of basic programming. These are indisputable facts about those who qualify as poor in the US. Compare this to being “poor” in Africa, or Burma. The prosperity pool is shallower there.
Even those who have no medical insurance here benefit from the rich, whose insurance pays for the development of new scanning technologies. Just today an article mentions a man believed to be in a coma for 23 years, until recent technology showed that was indeed aware- and he is now communicating.
Even the poor here get to go to the emergency room, where they are likely to be scanned by the latest in medical technology, provided care of the profit system, and the rich.
Safety devices developed for the rich make their way down to standard equipment on used cars eventually purchased by “the poor”.
Even without high dollar denominated incomes, the poor’s “boats” are lifted by the prosperity pool in which they are lucky enough to live. I wonder who will provide tomorrows cutting edge medical technology once the last profit driven system has too been crushed.
I’M OUT.
It’s perfectly valid not to care how the pie is divided up, but given a static pie, the more one person has of it, the less another person does. I’m not sure why you think that statement is so controversial.
Does the pie have any meaning? Even given that the pie has meaning does the inequity have meaning? That’s a different sort of question – but it doesn’t change the math.
It’s not a static pie. therein lies the problem with that analysis and what makes the statement so controversial.
The math may be technically correct, but the conclusions drawn from the math are not.
Being able to add two numbers together does not mean they bear any meaningful relation to one another. There is no other way to describe what you are saying than to call it the well known “zero sum” economics.Value, and wealth, do not come from little green pieces of paper. If you dig clay out of the ground and mould it, or design a poster on the computer, or invent a better panty hose, you have created value- the currency is adjusted to fit the amount of value in the market. There is no scenario by which my being productive in New York City makes you stupider, weaker, lazier, or otherwise less able to produce value in Sacramento. Thus, the earning of Krugman’s dollar does not make anyone in California poorer. The limitations of wealth are the limitations of human action. Put another way, you could take all your math, wave a wand, magically double all your numbers. Give everyone twice as many dollars as they had the day before. This would change nothing. It would not make the unproductive any more productive. It would not increase the prosperity pool (the general level of infrastructural luxury in a society). It would not harm the rich to the benefit of the poor. Your math is meaningless. Not every valid equation has a point.
Re: “There is no other way to describe what you are saying than to call it the well known “zero sum” economics.”
No, it’s not at all. Given an aggregation of wealth, if one person owns 50% of the wealth no other person can own more than 51% of the wealth. That’s not zero sum economics – that’s called “property rights”.
Zero sum economics is if you assume that for one person to benefit another person has to lose. Simply recognizing that the numbers have to add up doesn’t imply this zero sum mentality at all.
51% + 50% = 101%
I guess you do see that wealth creation is a positive sum game.
“Given an aggregation of wealth, if one person owns 50% of the wealth no other person can own more than 51% of the wealth.”
Depends on how you define wealth – if it’s the cumulative market price (however that’s determined) of all of the stuff in a country/town/whatever then your statement is correct. If it’s the cumulative value, then aggregation is impossible (as value is subjective) and Steve_O is correct.
Are you kidding? Krugman indeed is a zero sum advocate here. You think his new New Deal isn’t about income redistribution?
Krugman is a very dishonest man in this regard, and frequently puts his political agenda before economics. And when his opposition uses economics, he responds with invective. See this as well.
So now you should retract your retraction and apologize for your apology!
Are you kidding? Krugman indeed is a zero sum advocate here. You think his new New Deal isn’t about income redistribution?
Krugman is a very dishonest man in this regard, and frequently puts his political agenda before economics. And when his opposition uses economics, he responds with invective. See this as well.
So now you should retract your retraction and apologize for your apology!
Awesome! Krugman managed to talk out of both sides of his mouth and got Boudreaux to apologize. He appeased his socialist audience with populist remark, at the same time, left it wide open for interpretation, so an elitist technocrats can debate on what he really meant. I’m taking copious notes here. My goal is to be a George Soros, Al Gore or a Warren Buffet tomorrow.
It sounds to me that it is same for one to follow Krugman’s idea and say although Paul Krugman who has higher income than other americans, it turns out that that’s mainly because his rich is much richer. That is indeed a radical thought: if Paul get more, that leaves less for everyone else.
I wish I am not misinterpreting his message.
All:Please do not misunderstand me. I do not say in this post that Krugman’s economics of late isn’t lousy. It is lousy. It is often the worst sort of populist nonsense (which naturally gives rise to the interpretation that I apologize for in this post). Nor do I deny that in many other articles and essays that Krugman writes as though market economies are zero-sum places.Nor do I endorse any of Krugman’s “redistribution” policies.
Nor do I deny that Krugman is a font of inconsistencies.But almost any statement by anyone has a range of plausible interpretations, and it is best ALWAYS to interpret each statement in the most generous light that plausibility allows.Daniel Kuehn’s interpretation of Krugman’s comments is both plausible and more-generous than my initial interpretation.
It is plausible to interpret his statements more generously only if one ignores everything else he writes. When one interprets his statement in the context of all his other statements, then I think you get a much more accurate picture of what the man thinks. Or, more accurately, what he’s trying to get everyone else to think.
In that 2002 NYT Magazine essay, Krugman said — I now believe — NOT what I originally took him to say. Regardless of what he says elsewhere, what he said THERE must be interpreted as generously as plausibility permits — and so I believe that my retraction of my original, long-standing interpretation is valid and appropriate.
Fair enough.
You’ve got to be Kuehning us, Don! And I mean that in all it’s concealed strategy that that implies. You don’t think for a minute that Krugman meant anything other than zero sum economics, do you? Reading Kuehn’s interpretations of what Krugman had meant is starting to become as trend setting as his supposed disagreements [with defenses too] of Krugman inconsistencies.Unless, of course, you’re out Kuehning Kuehn by calling attention to his interpretations. If so, “coup fourre!”
“Kuehning” – haha – I’m a verb now, huh? Usually all “Kuehn’s interpretations of what Krugman meant” amount to is “I have some problems with his approach too but he’s not THAT dumb you guys”. It’s amazing what kind of hysteria that sort of sentiment can induce
You are incredible Mr. Kuehn. That’s a wonderful and self confident way to handle someone’s sarcasm. Feigning humility in amidst a feeling of self importance. Good stuff. I’m on my way.
What Krugman is doing there is being arithmetically correct while playing up the suggestion that economics is indeed a zero sum game outside the percentages of GDP. He knows damned well that most of his readers are not going to make the arithmetic distinction. Daniel knows it too, which makes this a pinnacle of pedantry.
Don, intellectual honesty is the reason I keep coming back to Cafe Hayek. Even when it means giving credit to someone who has become as annoying as Paul Krugman.
DanielKuehn: ‘I doubt he questions “a rising tide lifts all boats” so much as he questions whether that oversimplified metaphor really captures all the issues that he (and presumably his readers) care about.”
Don, this is where daniel convinced you that Krugman didn’t mean to imply a zero-sum process?
I find it very difficult to believe that Krugman was not playing to the emotions of his readers and attempting to incite class envy when he wrote:
“if the rich get more, that leaves less for everyone else.”
Like some who comment here at Cafe Hayek, I think Krugman will spout nonsense to make political points and then later claim we misinterpreted him. I am sure daniel is aware of how this trick works, and I am not at all surprised that daniel would defend Krugman when he employs it.
I respect your desire to be overly fair to Krugman, but I do not understand why you bend over backwards to do so.
Thanks John. I appreciate this comment of yours (as I do all of your comments).But I stand by my apology, sincerely so.We (true) liberals can afford to be as generous as plausibility permits in interpreting others, for reason, history, and data are overwhelmingly on our side. But even if they weren’t on our side, intellectual honesty and the scholarly attitude demand that civilized human beings be generous in argument and debate, and avoid all duplicity and strategems.
I respect your liberal attitude. Not sure why I cannot be as generous. Perhaps it’s the cutthroat environment I’ve spent my life in. A few upstart airlines proved that this industry is not zero-sum. But that didn’t stop them from fighting like hell and never conceding anything to the competition.
John, I’ve thought about this some more because I remember reading that 2002 piece and I remember my visceral reaction. I was appalled by his glorification of the 50′s and 60′s – when is sucked to be a woman or black or Jewish or different from everyone else in the middle class suburb. I was more appalled at his implied whining that the producers got to keep more of the product of their labour – though he would never put it that way. He is technically correct, but the zero-sum implication is clear. Perhaps that’s why you feel less generous. It’s why I feel less generous than Don.
It may be technically true that the some group accounts for more of the GDP than another at any given time, but just look at the language that even Don Boudreaux used:
“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.”
PAID? I eat only what I kill. I risk my own capital to generate my income. If I didn’t do that, I would not get paid out of that year’s GDP pie and the pie would be smaller. If I scratch for the year, I work all year and get paid nothing at all. Of course I will only continue to live this way if I generate a lot of income – more than the average person with a paycheck and vacation time is willing to settle for. The people I employ in various capacities generate a part of the firm’s income and I pay them if they add value and I fire them if they don’t. They too basically eat what they kill or help to kill.
It’s not that Don Boudreaux doesn’t know this and it’s unlikely that Krugman doesn’t either (I’m less sure about Krugman). But the way he said it and even in the apology post by Don, the generation of the GDP and who receives it is disconnected – as if they happen independently. One gets the sense that GDP is magically created and people who had nothing to do with its creation are passively “receiving” chunks of it. They are paid a portion. By whom? one is left to think by government. Krugman did that on purpose.
Very good arguments, methinks.
If Krugman had made the distinction between business owners and paid corporate executives, his arguments about inequality may have been more acceptable. As a shareholder of a number of corporations, I am frequently disturbed by the large sums paid to some mediocre executives. Occasionally I let the Board of Directors know of my displeasure. Having known a couple of “hired guns” and read about many more, I am unconvinced most are worth the sums they are being paid.
Of course, where Krugman and I likely disagree is about the prescription to this problem. I want the Boards of Directors to reduce executive compensation and return the money to the shareholders. My guess is that he favors either government controls or high taxation.
Business owners are a different matter for me. Giants such as Micheal Dell, Fred Smith, and Philip Knight have every right to the billions their customers have exchanged with them.
Don is not agreeing with the tone of Krugman’s essay, which I read as an appeal to pure envy. But it certainly seems that, by taking one sentence out of the context of a blatant criticism of wealth and income, Don is giving credence to the entire essay. Perhaps that is why his apology bothers me. Having said that, I remain deeply respectful of Professor Boudreaux and still consider reading his posts the spiritual highlight of my day.
Yes, Don, kudos to you for your heightened sense of awareness about falsely accusing Krugman, but he deserves none of your deference, especially if it hinges on interpretation.Gene Epstein describes a very recent Krugman gaffe:
Epstein also observes,
[Debunking Krugmania, Barrons, 11/16/09.]Nor would they (the average NYT reader – a little light in the IQ dept) know how to interpret this. The fact that Krugman does know, or should have reason to know, makes such statements as the one above either ignorance, which doesn’t look good, or intentional misrepresentation (i.e. lying), which is even worse. Your interpretation of his 2002 comments is understandably skeptical.As Methinks accurately states above, you cannot evaluate this particular comment in a vacuum, particularly given his well documented propensity to distort, attack, and flat-out lie. And yes, I am accusing him of being a liar (see above).
I agree Kudos to you Don. It shows great moral character to admit when you made a mistake. That you do this, when Krugman will not, shows not only your character but Krugman’s as well. While you respond to comments that challenge your view and give them deep though, Krugman deletes those comments. (Yes Dan, Krugman doesn’t do it himself, his blog admin does, but the buck stops at Krugman’s desk, he is responsible for what goes on at his blog)
All it means, though, is that Krugman has this little victory, but the war is far from over. Mesa said it best, that the average NYT reader probably would interpret Krugman to be saying zero sum economics. I’m not so generous as you, I think that’s exactly what Krugman was going for. So I still think Krugman is more propagandist than economist.
I don’t get the point of the apology at all. But I understand this much. You’re tacitly admitting that inequality is an evil and that it can be reduced by taking from the rich to give to the poor.
And that’s what you should apologize for.
I’m admitting no such thing. I’m merely acknowledging that I misinterpreted what Krugman wrote in that 2002 article.
On what basis do you conclude that I am “tacitly admitting that inequality is an evil….”?
If I misinterpreted you, I’m sorry, but I’m still not so sure about that.
Let’s give Krugman the benefit of the doubt, as far as we can. He wasn’t necessarily saying that “Joe can get richer only by making Suzy poorer, and vice-versa.” He may still understand that Joe’s getting richer can make Suzy richer, too. So where does he part company with us?
Giving him the benefit of the doubt, he’s all for Joe’s getting richer if Suzy gets richer to the same degree. If they start out at yearly incomes of $200,000 for Joe and $100,000 for Suzy, Joe’s going to $400,000 is fine with Krugman if it means Suzy goes to $200,000, but not if Suzy only goes to $150,000, for though Suzy is richer in absolute terms she’s poorer in proportional terms, and though everyone is richer, inequality is greater.
Whether Krugman believes that wealth production is a zero sum activity or not, he certainly believes that an increasing inequality of incomes is evil. And I don’t recall your disputing that. All I recall is your disputing the alleged increase in inequality, which was to tacitly admit that it was evil.
The fundamental and essential assumption of the Left is that taking from the rich to give to the poor reduces inequality. And if you don’t dispute that, you tacitly concede it. I don’t recall your ever having disputed it.
“And it has been an article of faith in this country that a rising tide lifts all boats.”
This is also typical nonsense from Krugman. There is no faith about it. It is an undeniable empirical fact. Take any objective measure of income (size of house, number of cars, leisure time, etc.) and unskilled labor has seen improvements over every generation. This comment is just a way to discount the overwhelming fact (It’s just a matter of faith, like garden fairies.) in order to feed his ignorant readers what they want to hear, while keeping plausible deniability (“He said everyone believes it. What are you complaining about?”). It’s disgusting.
No need to apologize, Don. Both Paul Krugman and your patron, Daniel Kuehn, are wrong. Just as wealth-creation is not zero-sum, neither is income-creation. Income does not “pre exist” to be distributed. It is created, earned if you will, in each and every time period. Income creation is win-win, just as is wealth creation.
“if the rich get more, that leaves less for everyone else.”Here’s why this sentence bothers me so much:Rich man Herb Kelleher created an organization – Southwest Airlines – which figured out how to make passenger air travel much more efficient. As Southwest attracted more air fares, rich executives and shareholders of U.S. Airways, United Airlines, and other companies did indeed get less compensation for their efforts. But the customers of Southwest Airlines kept many more of the dollars they would have given to those other airlines – and to Greyhound bus lines and to Exxon for gasoline for personal vehicles.So was everyone else left with less as rich man Herb Kelleher got richer? Of course not. Herb Kelleher managed to increase his wealth at the same time that his customers were able to increase their standard of living. It’s not “everyone else” who received less, but just the inefficient producers and the owners of those inefficient companies.Krugman wasn’t writing about the arithmetic of GDP. He was writing about the supposedly unfair way in whch wealth is acquired. His essay is offensive.
“if the rich get more, that leaves less for everyone else.”This is NOT “a matter of arithmetic”. Krugman did not say:”if the rich possess more of a fixed amount of wealth, there is less wealth left to be possessed by everyone else.”Rather, he said:“if the rich GET more …”He’s writing about the process of acquiring wealth. And Krugman is wrong. As giants such as Herb Kelleher and Sam Walton GOT richer, they increased the wealth of almost everyone else.
I agree that Krugman can be interpreted in this way — and, frankly, I have little doubt that this “fixed-pie” impression is the one that he meant to convey to (and/or to depend upon from) his readers. But still, in the context of looking at shares of a GIVEN GDP, my new interpretation is both plausible and the more-generous of the two.
I insist upon giving even devils their due — or, even more than their due. We (true) liberals can afford to be generous in our interpretations of others.
Estimado Don: Usted no debe disculparse por su interpretación sobre las creencias de Krugman. Su interpretación es correcta. Yo observo, desde afuera, que la ideología del señor Krugman es el motor intelectual de la mente económica del Presidente Obama. El esquema permitirá confiscar violentamente la riqueza del sector privado. La lógica de su intervencionismo se está utilizando como el instrumento perfecto disfrazando al pseudo-socialismo con la figura del gobierno benevolente. Los socialistas creen que se trata de un avance hacia el socialismo, los anti-socialistas también creen en ese socialismo, y quienes no entienden nada se creen el verso del gobierno benevolente. En verdad, a la distancia, solo se observa el inexorable avance de un mero acto confiscatorio operado por la mano invisible de la gran hermandad de los improductivos.
“no other person can own more than 51%”
Wealth creation is certainly a positive sum game. Given a set of created wealth, dividing it up at a point in time isn’t. That’s just property rights.
Just because it’s impossible for any one person to subjectively evaluate and add up doesn’t mean the principle isn’t still correct.
Even if you can’t practically aggregate it and everything is subjective, two people still can’t own the same thing at once.
I agree only that there is a fixed supply of ‘stuff’ – but the total wealth of that stuff depends on who owns it. You may have a thing that you don’t want but I do, and vice versa – by swapping we’ve increased the total wealth but not the ‘stuff’. To me, towards ‘wealth’ is the direction that the market process inevitably moves, not a thing that can be measured.
John, I’m not sure I value executives that differently from an entrepreneur. As an investor, I can choose to allocate my capital elsewhere. I’m not forced to remain a shareholder. As an investor, I regard entrepreneurs in the same way.
I understand that Don is very narrowly conceding that in that particular statement, Krugman is not claiming that wealth creation is a zero-sum game. He is merely giving that illusion. Purposely so. Very passive aggressive.
I still don’t like the way Don’s apology divorces GDP from its creators, but that’s my problem.
Having said that, I remain deeply respectful of Professor Boudreaux and still consider reading his posts the spiritual highlight of my day.
Ditto.