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Paul Krugman on Plutocracy

Here’s a letter to the New York Times:

In the course of rightly criticizing crony capitalists who hypocritically bemoan being burdened by the very government that gives them special privileges, Paul Krugman not only paints with too broad a brush against ‘the rich’; he makes at least two logical errors (“Plutocrats Feeling Persecuted,” Sept. 27).

The first error occurs when Mr. Krugman writes that “thanks to surging inequality, these petty people [the “plutocrats”] have a lot of money.”  Contrary to Mr. Krugman’s implication, however, crony capitalists “have a lot of money” not because of rising inequality but, rather, because government gives them special privileges.  At root, inequality here is the result of actions by the agency so trusted by Mr. Krugman – the state – rather than the source of itself.

Mr. Krugman’s second, related error is his claim that “money brings power.”  In fact, only government brings power.  While it’s true that people with lots of money are disproportionately able to use whatever government power exists, a government of few and strictly limited powers would be unable to grant special privileges even to the wealthiest of people.  The core problem, therefore, isn’t “money” or “the rich”; it is, instead, the existence of the expansive and vigorous government power that Mr. Krugman famously, if illogically, believes is key to freedom, prosperity, and greater equality.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market
Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

Notice also, in this Krugman column, more than a whiff of the notion that the size of the economic pie is fixed.  Rising income inequality, after all, is not a necessary condition for some people to “have a lot of money.”