Krugman On Income Inequality And Economic Growth

By Big Tent Democrat, Section Other Politics
Posted on Wed Dec 17, 2008 at 08:43:41 PM EST
Tags: (all tags)

Share This: Digg!

Responding specifically to Kevin Drum and to those, like me that share the "widely held view" Kevin espoused about the need to addresss income inequality for sustained economic growth, Krugman writes:

This is a widely held view, and I’m as much in favor of a strong middle class as anyone. Nonetheless, I’d say that in terms of strict economics it’s wrong. There’s no obvious reason why consumer demand can’t be sustained by the spending of the upper class — $200 dinners and luxury hotels create jobs, the same way that fast food dinners and Motel 6s do.

Krugman cites NYC as an example. Far be it from me to disagree with a Nobel prize winning economist, but this seems antihistorical to me. Mature economies have depended upon a large middle class. NYC in particular has a large middle class outside of Mahattan (even larger if one consider the entire metropolitan region.) In any event, this gives me a research project on economic history and I will try and see if I can disprove Krugman's argument.

Speaking for me only

< Fox Gives Sheriff Joe Arpaio His Own Show | Wednesday Evening Open Thread >

Legal

Nothing on this site should be construed as legal advice. TalkLeft does not give legal advice.

TalkLeft is not responsible for and often disagrees with material posted in the comments section. Read at your own risk.

Krugman On Income Inequality And Economic Growth | 18 comments (18 topical)

Readers Must Login or Create an Account to Comment

It might be good economic theory... (5.00 / 1) (#4)
by Addison on Wed Dec 17, 2008 at 08:55:14 PM EST

...but a society full of a few rich patrons and many slave workers is not what we want. People need a purpose in their lives, people need to feel that their important among their peers.

The idea that a modern American economy could be supported building yachts and mansions and serving expensive meals to the rich is silly.

People aspire these days. People look up to see where they will be if they work hard, not who they can serve if they work enough.

And if the next rung is 30 feet over your head it's hard to stop thinking about knocking over the whole thing.

Krugman will have to explain (5.00 / 3) (#8)
by oldpro on Wed Dec 17, 2008 at 11:31:18 PM EST

himself on this one.

It may be that he is factually correct if all we're talking about is math...numbers...dollars. But what does that have to do with the USA and the world economy and lessons learned? Not to mention, standard of living...

BTD (5.00 / 1) (#9)
by phat on Wed Dec 17, 2008 at 11:44:06 PM EST

If you need help in that research, send me an e-mail.

I have some ideas about this.

dr. krugman is correct, on (5.00 / 1) (#10)
by cpinva on Thu Dec 18, 2008 at 12:02:47 AM EST

the basis that he presented:

in terms of strict economics

as well, he didn't specify how long the economy could be sustained or grow, just that it could. he also didn't opine as to whether he thought that type of economy was good or bad for the country, just that it could exist.

bear in mind, the whole concept of a middle-class is relatively new, only being an identifiable income group since the rise of the merchant class, a couple of hundred years ago. ok, maybe 300. prior to that, there were pretty much only two classes, rich and poor. economies did survive and grow, albeit slowly, before the middle-class was born.

after reading all the responses, it's clear that the majority of those that did read what they thought he said, not what he actually did.

he's also been pointing out, for years, the massive level of income/asset inequality, and noting how this isn't good for the country as a whole.

again though, in strict economic terms, he's correct.

I'm sure that in some coherent (5.00 / 1) (#13)
by Faust on Thu Dec 18, 2008 at 01:51:20 AM EST

mathematical model of the economics Krugman is describing is possible. It may even be that NY is a good example of it. In any case I will give him the benefit of the doubt.

I also believe that Aldous Huxley's vision in "Brave New World" is also possible.

Frankly I don't give a flying f&2k if they are possible or not. Or even if they EXIST or not. The question is if I want to have anything whatsoever to do with them.

NO.

I mean do we "need" the middle class? What kind of rhetorical question is that? Of course we don't. Lets go back to the dark ages while we are at it. But I sure as hell want one.

Good luck on fiding your counter evidence. That's a worthy project in any case.

If only the rich consume... (5.00 / 2) (#18)
by Dadler on Thu Dec 18, 2008 at 10:16:49 AM EST

...within a very short time, the poor will be so numerous and hungry that they will, in turn, waste no violent time in consuming the rich. French Revolution anyone?

Could Manhattan exist on its own? (none / 0) (#1)
by andgarden on Wed Dec 17, 2008 at 08:49:39 PM EST

It is an interesting question, I think.

My guess is, BTW, that it would probably have (none / 0) (#2)
by andgarden on Wed Dec 17, 2008 at 08:50:36 PM EST

to import menial labor like Dubai.


Immigration (none / 0) (#3)
by Big Tent Democrat on Wed Dec 17, 2008 at 08:52:13 PM EST

is also a key component of NYC's economic vibrancy.

In many ways, NYC is sui generis.


: Rome without the government (none / 0) (#6)
by andgarden on Wed Dec 17, 2008 at 08:58:31 PM EST

NYC is unique, but also not. It shares lots in common with Chicago and Toronto, and to a lesser degree Hong Kong. Yes, I took a class on comparative urban history.

I think heavily skewed income distribution (none / 0) (#5)
by ThatOneVoter on Wed Dec 17, 2008 at 08:56:21 PM EST

is incompatible with democracy----unless you favor the old model, where only property owners vote.

And (none / 0) (#12)
by cal1942 on Thu Dec 18, 2008 at 01:15:14 AM EST

that was only viable in an agricultural society.

Now if the country is turned into a cabbage patch (as seems possible if we keep ditching whole industries) spending by the rich would sustain a very small middle class and the vast majority would be reduced to some miserable form of subsistence.


aka developing economies (none / 0) (#15)
by Fabian on Thu Dec 18, 2008 at 08:12:28 AM EST

Which is what we used to call the Third World nations.

There were two basic reasons for third world nations. One was extraction economies which benefited primarily other countries (mining, drilling, export agriculture). The other is a country poor in exploitable natural resources. This predisposes countries to a large subsistence population with relatively small upper and middle classes. I suppose another way to think of these economies is "Wal*Mart economies" because most of the profit is sent elsewhere instead of retained and distributed.

These economies can be improved. Retaining and distributing a larger portion of profits, educating the population, lowering the birthrate, improving public health...all these things will improve the economy and the economic mobility of the people.

Just because we have a substantial middle class now doesn't mean that our economy can't shift. All the things that can improve an economy can also destroy an economy. Steadily decreasing education and public health, hoarding of resources by the most powerful...

The question we should ask ourselves isn't "Where are we now?". The question we should ask is "Where are we going?".


: That (5.00 / 1) (#17)
by cal1942 on Thu Dec 18, 2008 at 09:14:11 AM EST

is why I've said that we may end up as history's biggest joke. A nation with everything that let it all slip away.
We're exporting raw materials that are finished overseas and returned for retail. We are not in a good place.

I am confident (none / 0) (#7)
by Steve M on Wed Dec 17, 2008 at 09:40:08 PM EST

that the multi-millionaire investment bankers drive the price of real estate in Manhattan and definitely have a major effect (or maybe HAD)... but they absolutely are not the entire economy.

I dunno, I feel I kinda have to take the argument seriously because it's Krugman making it, but it sure doesn't seem right to me.

Krugman (none / 0) (#11)
by cal1942 on Thu Dec 18, 2008 at 01:01:47 AM EST

isn't right just because he's Krugman.

We've all had a screw loose now and then and Nobel laureates are no exception.

Consumption by the rich couldn't possibly trigger the type of growth needed to produce a truly strong economy. Not enough money spread around to trigger widespread demand.

In fact, let's raise their taxes and spend the revenue on projects that generate jobs. They'll never willingly spend that much.

In some ways Krugman's bit reminds me of the charity events in the early thirties that were supposed to eleviate the suffering of the unemployed. It was a joke.

: Statistics (5.00 / 1) (#16)
by NMvoiceofreason on Thu Dec 18, 2008 at 09:03:52 AM EST

Lies, damn lies, and statistics. Simple math rule from far too many decades ago called the Law of Large Numbers. One rich person can have an effect on the economy. Whether they will or not is subject to the Law of Independent Trials, and thus not predictable. Six rich people is borderline, but you might be able to detect a trend in whether they will intervene in the economy or not. Millions of people, spread over Connecticut, New Jersey, New York, etc.? The Law of Large Numbers says more people, more stable results. Which is kinda the argument for having a middle class to begin with, and why the Republican policies of class warfare have destroyed our economy.
:: As the proverbial "screw loose" kind of guy, "arrogant, but competent" as my boss used to say, I hereby appoint cal1942 as one of my personal heroes here on TalkLeft (not for this post, although it is a good one, but for all the others).
Thanks again to BTD for even bringing this up.

The vast majority of Americans (none / 0) (#14)
by BernieO on Thu Dec 18, 2008 at 07:27:10 AM EST

live in places where there are not a lot of rich people so it is hard to see how this could work.