Paul Krugman on the political salience of inequality

by on April 30, 2014 at 7:00 am in Current Affairs, Economics, Political Science | Permalink

Krugman wrote:

…it is notable that in a time of deeply depressed labor markets, our biggest thing is long-run inequality.

Or closer to home, I do of course track how my columns do on the most-emailed list; and there’s no question that inequality gets a bigger response than demand-side macro.

This doesn’t mean that we should (or that I will) stop trying to get the truth about depression economics across. But it’s an interesting observation, and I think it has implications for how politicians should go about doing the right thing.

This is a very interesting point (link here), but it differs from my view.  I see the inequality issue as having high salience for NYT readers, for Democratic Party donors, and for progressive activists.  It has very little salience for the American public, especially with say swing voters in southern Ohio or soccer moms.  Unlike in Singapore or South Korea, where the major concentrations of wealth are pretty hard to avoid for most people, American income inequalities are well hidden for the most part.

McLean is one of the wealthiest towns in Virginia, but if you drive through the downtown frankly it still feels a bit like a dump.  I’ve never wanted to live there, not even at lower real estate prices.  You don’t stumble upon the nicest homes unless you know where to look.  Middleburg is wealthier yet, but it has few homes, feels unreal, and most people don’t go there anyway.  If they do, they more likely admire well-groomed horses and still read Princess Diana biographies.  They are not choking with envy over the privileges of old money rentiers, and there is no Walmart in town to bring in the masses (who probably would not care anyway).

Perhaps ironically, to the extent that inequality as a phenomenon consists of the top 0.01% pulling away from the pack (not my prediction, by the way), general public resentment against the very wealthy will be especially hard to generate.  Out of sight, out of mind.

What swing voters really hate is inflation, probably irrationally so.  That does mean the aggregate demand argument won’t have much political salience, but as a result I see the Left as not quite knowing what to do next.  We’ll get pre-school in more cities, a $15 minimum wage in Seattle, and lots of action targeted at high cable bills, which for the intelligentsia will be tied to net neutrality and various mergers.  As the de Blasio reign indicates, blue cities may be the new laboratories for trying out bad ideas.  The states which won’t expand Medicaid may yet budge, but most of them are firmly in the “red” category.  The political influence of the local hospitals will matter more than intellectual discourse.

In short, you can expect a series of totally unsatisfying political debates, and they will further distort the discussions of economists, on both sides of the political ledger.

ummm April 30, 2014 at 7:12 am

I think it’s just the opposite. McLean may look like a dump but turn on the TV, open the paper or surf the internet and it’s all rich & famous people for the most part.

Tyler Cowen April 30, 2014 at 7:26 am

Exactly, and it is because it is *attractive* to so many to read about those people…

RAstudent April 30, 2014 at 9:57 am

I kind of agree with you on your thought that income inequality has little salience for the American public at this point (although i disagree with your idea that swing voters care about inflation. old people and bankers care about inflation. swing voters tend to be debtors and so they benefit from inflation, they just may not realize that yet). However, this is not because income inequality is out of sight out of mind. Ummm is right, its in your face (think Cribs, real housewifes, athletes, magazines, etc). Its not salient at this point because people perceive the inequality as deserved. Bill Gates, Steve Jobs, and the like created something valuable and so people feel like they deserve their money. Once this becomes entrenched and inherited, the issue will become much more important. The perception will change from Bill Gates the deserving and charitable entrepreneur to Paris Hilton, the spoiled and undeserving brat. Furthermore, if the left is successful in making the case that the game is rigged, that’s when the wheels fall off and the torches and pitchforks come out.

Mike April 30, 2014 at 10:08 am

You think swing voters don’t get upset when the price of gas (or bread or milk or whatever) goes up? You are confusing a normative claim (they shouldn’t care because they benefit) with a descriptive one.

RAstudent April 30, 2014 at 10:19 am

I am saying that will change just like the salience of inequality.

Thor April 30, 2014 at 11:34 am

Excellent insights. For anyone who doesn’t think the pitchforks will come out, look at the history of Europe in the 20th cen., esp. the ’68 phenomenon in France (and in the West in general).

Even without a revolution, we can easily have rancour, bitterness, anger and hatred, and a poisoned discourse — think black/white relations.

Greg G April 30, 2014 at 7:28 am

Mood affiliation situation?

Just Another MR Commentor April 30, 2014 at 7:43 am

Well except if you open the NYT to Paul Krugman’s page. That guy may be famous but I assume he’s basically a hobo – I mean otherwise arguing to soak the rich would make him some kind of a hypocrite wouldn’t it?

Brian Smith April 30, 2014 at 10:29 am

How so?

KPres April 30, 2014 at 11:31 am

Because he’s free to donate 80% of his income to the government but chooses not to.

Zephyrus April 30, 2014 at 11:56 am

Among the lamest arguments out there.

RAstudent April 30, 2014 at 12:35 pm

Bill Orielly parrot.

msgkings April 30, 2014 at 12:41 pm

+1 to Zephyrus. Sick of that one. Equal in stupidity to ‘everyone knows the rich don’t pay taxes’

Phil April 30, 2014 at 12:37 pm

McLean doesn’t look like a dump. McLean consists of large, nice looking suburban houses and McMansions on large lots with big yards and trees and nice natural scenery. It does not consist of old strip malls everywhere. Tyler is misrepresenting McLean in order to mislead and misdirect readers. It’s like claiming the Upper East Side is a dump by taking a picture of some old bodega in the UES and saying that it represents the UES.

Dave Anthony April 30, 2014 at 1:34 pm

He said “downtown McLean”, which I would consider the part on Old Dominion Drive near Chain Bridge, and his description is absolutely correct. It’s old, slightly run down strip malls (kind of like Vienna, VA, another town with lots of money). Hard to say why — it could be just because McLean is not incorporated (it’s just part of Fairfax County) and in terms of upscale shopping and businesses, those can be found in nearby Tyson’s Corner, VA or Georgetown in the district.

Professor Cowen is not misleading anyone with his statement — the parts of downtown McLean that people would typically see are unimpressive. Downtown Reston looks more impressive than McLean.

Head down 123 to the Chain Bridge and yeah, you’ll see some mansions but a lot of it is hidden in the trees and down private roads.

Ray Lopez April 30, 2014 at 7:17 am

McLean is a bit of a dump, but I did see Arnold and his wife there once, as ummm says a lot of wealthy people live there, including some Filippino-Americans and the Mars candy bar brothers. But TC is right about inequality being a minor issue in the USA. Come to the Philippines and you’ll see entire towns, with militia, run by 0.1% elites like Boss Danding (http://en.wikipedia.org/wiki/Eduardo_Cojuangco,_Jr.). 1% is not 0.1%. 1% is me and my middle class family, and the neighboring fireman/policeman with his working wife. 0.1% are people the Koch brothers, Boss Danding, Putin and the like.

Just Another MR Commentor April 30, 2014 at 7:19 am

How does Boss Danding do with the local 18-22 Filippino girls? I think this calls for another story

RAstudent April 30, 2014 at 9:19 am

How can the “middle” class be in the 1%? Call me crazy but I always thought middle meant in the middle.

Mike April 30, 2014 at 10:13 am

By being between (“in the middle of”) the poor and the rich. When people speak or write about the rising middle class in emerging markets, do you really think they refer to the median individual? I doubt the median person in the Philippines comes anywhere near what you think of as the middle class.

RAstudent April 30, 2014 at 10:22 am

So you agree with Just Another and think that the “middle” class is in the top 1% then? I was just saying that I understood middle to mean in the middle. By definition, the middle cant be in the top 1%. I dont see what is confusing about that.

dsgntd_plyr April 30, 2014 at 11:00 am

@RAstudent,

You’re thinking of the Filipino middle relative to the Philippines. If you think in absolute terms, then those middle Filipinos don’t have the ability to consume like a middle-class person. Home ownership, car, college for the kids, private health insurance, xbox, etc.

Thelonious_Nick April 30, 2014 at 11:16 am

Think of a global middle class rather than a Philippine-specific one. A household could be in the top 1% in the Philippines but be middle-class on a global scale.

RAstudent April 30, 2014 at 1:04 pm

Ok, i see what he was saying now.

Ryan April 30, 2014 at 1:30 pm

Given sovereign currency, what the hell does being in the global middle class really matter? When people talk about the 1% they are referring to the 1% within America. Why change the goal post on the discussion here and start to compare globally? I’m not saying the overall argument isn’t of value; it’s just misplaced in this particular discussion.

If Ray Lopez net worth, as he has repeatedly claimed on here, is >5 million he most certainly is not middle class and he most certainly is not in the same ballpark as the typical US police or fireman.

albert magnus April 30, 2014 at 7:23 am

Inequality is evident if you are single person trying to find an apartment in the city. You notice lots of young pretty people who don’t seem to mind the rents in the Claredon/Courthouse corridor (because their parents are subsidizing them), but you have to live in Columbia Pike and take the bus.

Also, when trying to put your kids through a good college inequality is very evident.

I’m sure there are times in your life when none of this matters though.

Just Another MR Comodore April 30, 2014 at 7:27 am

Probably a sign that you don’t belong in the Washington area – head west young man to North Dakota

Roy April 30, 2014 at 7:53 am

But most of the middle class sends there kids to public universities with in state tuition, particularily when you move west from the East Coast. They don’t notice it so much. The kids at my flagship state school really don’t think about it and almost all local elites they encounter attended either their school or similar ones. Sure they complain about Californians, but those they encounter are very rarely 1% types, just people who sold out middle class houses in SF or LA. The 1% is really very remote. Even the kids whose parents came from California are like this. In Texas where I grew up, I really think this resentment against the 1% is pretty much confined to the 5-10% and allied groups such as academics and those in the most liberal professions. If there is any widespread class antipathy it is either against the whole professional class or it is between those who have college degrees and those who don’t.

I work with a lot of blue collar anglo and hispanic men, who are mostly pretty skilled and well paid. They have class conciousness, and are aware of status but they are just not focused on the 1%.

Former Courthouse Resident April 30, 2014 at 8:58 am

When I lived in the Courthouse area it was mainly young people with graduate degrees (like my wife and I, ours both earned at big state schools mainly on the tax payer dime). I can only remember one person we met who was clearly subsidized by her parents (and she was from Uruguay).

Urso April 30, 2014 at 11:03 am

Isn’t living in Manhattan itself a “luxury good?” It’s like saying, oh you don’t realize how bad inequality is until you’ve tried to buy a 7 series BMW. So expensive!

Now the difference is, I guess, that living in Manhattan doesn’t *have to be* a luxury good; we could be living in Matt Yglesias’s personal paradise, with 99% of the US population living along the Eastern Seaboard in 100 sq ft apartments in 500 story skyscrapers (or a less sarcastic version of that reality). But as the world is, living in the UES is a luxury good; probably much more so than having a 7 series BMW.

Urso April 30, 2014 at 11:04 am

shortened version: what’s so horrible about living on Long Island anyway?

Zephyrus April 30, 2014 at 11:59 am

You’ve never been to Long Island, have you?

Wheelchair Fred April 30, 2014 at 9:25 pm

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Urso April 30, 2014 at 11:17 am

And yes I realize this particular post is about DC but these discussions always seem to come up vis a vis Manhattan, and I don’t know anything about DC anyway.

wiki April 30, 2014 at 5:36 pm

Same thing anyway. The fact that these examples are about expensive urban areas that represent a small fraction of the land where Americans live tells you that this is about resentment by the 80% of the 1%, especially when the latter are driving up prices of housing in the “cool” cities. After all how horrible would it be to have to live in flyover country or in a typical suburb? Every TV show set in Manhattan is designed to reinforce the idea that the suburbs are just one step above Haitian poverty.

Just Another MR Comodore April 30, 2014 at 7:25 am

Here Here! And don’t forget to crush the Longshoreman’s Union too! On my last trip transporting saltpeter from Valparaiso to San Fransico it took me four days to get my ship unloaded at the harbour

Beefcake the Mighty April 30, 2014 at 9:24 pm

Butt-plug say what?

ThomasH April 30, 2014 at 7:29 am

I see the importance of the inequality debate in that many policies that might be tried to increase growth and reverse the stagnation of middle class incomes will, unfortunately require some increase in taxes, especially income taxes. Until that can be done, we will get second and nth best policies — minimum wages instead of EITC, green energy set asides for utilities instead of carbon taxes, neclect of infrastructure investments and basic research, investment tax credits rather than abolition of the corporate income tax and fiscal deficits instead of surplusses (when unemployment has fallen).

andrew' April 30, 2014 at 7:57 am

So what have they been doing all this time?

Snakey April 30, 2014 at 7:33 am

What’s with right-leaning, tenured economists always appealing to their personal experiences when pushing back against income inequality as an issue? TC does it, Mankiw does it in his “Defense of the 1%”, David Brooks does it (ok, he’s not a tenured economist, but he’s sitting pretty comfortably).

I understand that your point is that the average American does not give a hoot about income inequality. But should it matter to them? Driving through McLean does not make you an expert on income inequality. If you really want to experience income inequality, drive through a suburb on the other end of the scale. Better yet, take a job at the other end of the scale. Work alongside the working poor for a year. Experience what they experience before making a call about whether inequality matters.

Just Another MR Commentor April 30, 2014 at 7:36 am

Sorry but this is just mood affiliation. Tyler Cowen is a tenured professor of economics who studied at Harvard, I think it’s pretty clear he has a very good perspective on the contemporary poor and middle class in America. They are largely an unproductive group who hold their comfy positions due to various State created barriers and regulations.

andrew' April 30, 2014 at 7:55 am

And/or the poor and middle class might be more productive if the state didn’t try to solve a winner take all economy through shuffling the leftovers.

lxm April 30, 2014 at 2:33 pm

They are largely an unproductive group who hold their comfy positions due to various State created barriers and regulations.

You talking about Tyler and his buddies the other tenured professors?

Or are you talking about the poor and middle class in their “comfy positions?”

What an awful comment.

guest May 1, 2014 at 10:15 pm

he was sarcastically mocking Tyler, the great proponent of free capital who has had a six figure job for the rest of his life because he got into harvard when he was 22 and then wrote a mediocre book

chuck martel April 30, 2014 at 7:59 am

“What’s with right-leaning, tenured economists always appealing to their personal experiences when pushing back against income inequality as an issue?”

Nobody should be able to use personal experience as evidence of anything. It’s meaningless because it’s anecdotal. A personal written account of a climb to the top of Mt. Everest can’t possibly be as illuminating as an account of the pertinent numbers, elevation, temperature, number of steps, breaths per minute. Since there’s no commonly understood method of scientifically describing or measuring odor, descriptions of the scent of freshly-baked bread are just so much blather, restaurant reviews are a waste of time to write or read.

At the same time, working at the bottom end of the wage scale makes one an expert on income inequality. Maybe you should write an economics textbook.

anon April 30, 2014 at 10:03 am

+1

Snakey April 30, 2014 at 12:51 pm

Congrats on your mastery of sarcasm! Well done.

Nonetheless: You illustrate my point very well. The personal anecdotes betray the fact that they haven’t really ever experienced the lower end of income inequality. (Read Mankiw’s “Defense of the 1%” for a good example of what I am talking about. He was middle class, and “made it”, so what’s all this hullabaloo about income inequality then?!) To use your example: They are the ones describing Everest to us, without ever having climbed it.

BTW, working at the bottom end of the wage scale obviously doesn’t in itself make you an expert on inequality, but it sure makes it harder for you to dismiss it as a non-issue.

chuck martel April 30, 2014 at 4:18 pm

“The personal anecdotes betray the fact that they haven’t really ever experienced the lower end of income inequality.”

A personal anecdote wouldn’t necessarily mean that someone hadn’t experienced any particular thing, including income inequality. By the way, how does one “experience income inequality”? By being poor? By being rich? Can’t everyone on the planet testify to the personal experience of “income inequality”? I don’t have access to John Forbes Kerry’s yacht, the Secretary of State misses out on looking through his pants pockets to find money for the pizza delivery.

Tommy April 30, 2014 at 10:25 am

I believe TC has spent a substantial amount of time in rural Mexico. Speaking from my own experience, spending time with the poor in developing nations tends to make one somewhat less sympathetic to the plight of “the poor” in the United States.

Snakey April 30, 2014 at 1:00 pm

Sure, I’d rather be poor in the US than poor in less developed countries. It doesn’t mean that I can’t be sympathetic to the plight of the poor in the US. May I ask how much time you’ve spent with “the poor” in your own country?

Tommy April 30, 2014 at 2:25 pm

My impression is that TC believes there is a tradeoff between helping the US poor and helping the global poor, and in this case one’s relative sympathies matter. You’re implying that I don’t have sufficient life experience to decide how much I personally sympathize with each group, I’m not sure where you got that idea, it’s more than a little presumptuous of you.

Tyan April 30, 2014 at 1:19 pm

I felt the same way after living in the US: I am now less sympathetic to the poor in my own country, cause they may be poor, but at least they ain’t US poor!

The Other Jim April 30, 2014 at 10:32 am

>I understand that your point is that the average American does not give a hoot about income inequality.

OK then. You have conceded Tyler’s entire point. We are done here.

>But should it matter to them?

Lord. Who are you to tell a couple hundred million people what they should care about? If you are Krugman, you are desperate for them care, because it gives you an excuse to raise taxes and empower the state in exchange for promising to fix “the problem” you insisted was going to crush them. What about you?

david April 30, 2014 at 7:36 am

Singapore actually underwent a period of “it feels like a dump” in rich areas between the 1985 recession and the mid 1990s, where a gap in transport development (east-west metro line opened in 1990, but the next line only opened in 2003) led to a stagnation of neighbourhoods built in previous waves of housing development. Most new development capital went to areas opened up in the master plan – reclaimed land even further away from the business district, in the north or in the east.

The Urban Redevelopment Authority solved this through an initially invisible change, namely letting majorities of individual blocks vote their way into eminent-domaining the remaining residents and selling the whole block. Suddenly, renovation everywhere. Because individual neigbhourhoods vote for it, the political problems (as weak as they are in Singapore) became even weaker. Owner occupiers wanted to cash out, and perform the handy task of politically organizing in favour of sale (and doing the dirty work of intimidating the reluctant residents whilst waving a flag of neighbourhood democracy).

… of course, it only had a large amount of owner occupiers because of a sustained period of pro-ownership policies prior to this. Which is where many parts of the US now stand. Don’t underestimate the impact of such policy changes, especially if they are not on the radar of lobby groups because they don’t translate well to an us-vs-them framework

david April 30, 2014 at 7:44 am

(the it-feels-like-a-dump-ism being accurately captured in, e.g., Gibson’s 1993 Wired essay on Singapore: everything feels like it’s too aggressively maintained, and you don’t see anything from a different architectural generation anywhere. That is why it feels like a dump, even though it’s rich and therefore clean and well-maintained; old design always looks old.)

Brian Donohue April 30, 2014 at 9:14 am

Excellent comment.

Andrew M April 30, 2014 at 10:32 am

Why do you imply that “neighbourhood democracy” is pejorative term? In Singapore it helps neighbourhood renewal, improving living standards for all residents, and helps prevent a handful of NIMBYs from stalling progress. What’s not to like?

Or to put it another way, why should the whims of the blocking minority take precedence over the whims of the majority who want to cash out? I can’t see any good reason.

david April 30, 2014 at 1:47 pm

because normally it is the blocking minority that is mobilized and waves the flag of “neighbourhood democracy”, against the desires of the urban planning board; the majority silently free-rides on the political capital of the current government, who will burn this capital in order to force the urban planner’s intentions through. In Western democracies, blocking extends to obstructive protest action that draws in unrelated municipal disputes, usually over funding of social services; this both raises costs for all involved and empowers the blocking minority with the political capital from wider disputes. Local majoritarianism instead recruits majority residents into being active promoters for the policy of redevelopment. Having the majority become visible campaigners in favour prevents the aggrieved blockers from dominating municipal politics, or joining a wider opposition message that the uncaring central government is riding roughshod over local interests.

moo cow April 30, 2014 at 7:56 am

A big smokescreen gets laid down. Of McLean: “this isn’t so great, I don’t see a problem here…” and the class war gets fought out between the next 9% and everyone else over who is getting what goodie the other isn’t getting.

prior_approval April 30, 2014 at 8:00 am

‘McLean is one of the wealthiest towns in Virginia, but if you drive through the downtown frankly it still feels a bit like a dump.’

Which is why Great Falls is where the rich live, not McLean. http://en.wikipedia.org/wiki/Great_Falls,_Virginia

And let’s be honest – the Nieman Marcus on Wisconsin Avenue is a much more tasteful environment, with the sort of flair provided by nearby Embassy Row that Tysons could never match.

rayward April 30, 2014 at 8:02 am

Krugman spent five years disparaging anyone who raised inequality as an issue, saying it was a distraction from the most important issue of inadequate aggregate demand. But once inequality began to resonate with his readers, inequality became the recurring theme in Krugman’s column and blog. What Krugman failed to do was connect the two issues (i.e., aggregate demand and inequality), and now is stuck with inequality as primarily a social issue, which is why it’s so easy for Cowen and other critics to dismiss inequality as just another excuse to redistribute income. Do Cowen and other critics actually believe that excessive inequality is only a social issue? I don’t think so, but defending the ramparts has become the more important goal for them. It’s understandable, but unfortunate. The correlation between excessive inequality and financial and economic instability is undeniable: r and g decline, owners of capital respond with a preference for speculation over investment in productive assets, bubbles develop, and a financial crisis soon follows. Piketty assumes that governments and central banks will always intervene in future financial crises, as they did in 2008-09, and adopt measures to prevent the value of capital from plummeting and thereby preventing another great depression. Even if inequality is primarily a social problem, isn’t there a significant risk that eventually governments and central banks will respond to social and political pressures and not adopt counter-measures in a financial crisis? I suggest that critics of Piketty and others expressing alarm over increasing inequality aren’t so much denying the correlation between excessive inequality and financial and economic instability as ignoring it. It’s a pity because everyone will suffer, the owners of capital perhaps the most.

Andrew' April 30, 2014 at 9:03 am

The bad part about suggesting that the government get back to public goods provision is that I personally have no dog in the fight. The nice thing about it is I’ll be able to do it the rest of my life.

Benny Lava April 30, 2014 at 8:19 am

But where is the evidence?

Oderus Urungus April 30, 2014 at 9:11 pm

In my ball-sack, about to be sprayed all over your mother-fucking face.

bob April 30, 2014 at 8:22 am

Krugman. I wish I could stomach forging ahead. TC must lack a disgust reflex.

prior_approval April 30, 2014 at 9:03 am

‘TC must lack a disgust reflex.’

Undoubtedly.

Just Another MR Commentor April 30, 2014 at 9:17 am

Yes, as few today know Tyler Cowen’s disgust reflex was surpressed as part of a diabolical experiment perfomed by Professor Frank Enstein, Director of the George Mason University Institute for Peverted Science and Open and Free Frontires (PSOFF) , sometime in the mid 1990s. As PSOFF was later merged with the then newly created Mercatus Center few would have heard of this tale.

Jeff April 30, 2014 at 5:02 pm

Did Alex undergo the same procedures?

Z April 30, 2014 at 8:23 am

Tyler, I think you are underestimating the power of “NYT readers, for Democratic Party donors, and for progressive activists” to shape the debate and *make* this important to middle America. Americans never spent much time thinking about health care until “NYT readers, for Democratic Party donors, and for progressive activists” made it their obsession. Most people thought homosexual marriage was a punch line until “NYT readers, for Democratic Party donors, and for progressive activists” made it their cause.

Just Another MR Commentor April 30, 2014 at 8:37 am

If only they would use that power to do some good in the world like call for open borders.

dsgntd_plyr April 30, 2014 at 11:19 am

Huh? They are calling for open borders.

Erik April 30, 2014 at 9:29 am

This is an important point. Elections may be decided in the swing states but politics happens elsewhere. What this indicates is that the “Top Ten Percent Less the Top Tenth of a Percent” (TTPLTTOAP) is starting to peel away from the dual-party agreed upon path of unbridled free-trade neoliberalism.

TC is correct that the general populous of the US is well-insulated from inequality. If you live outside of any of a handful of major cities and wealthy suburbs, you don’t see the top 20%. However those that live in those cities see both the extremes. No one outside of NYC really sees the top 0.1% in any meaningful way. However in the past the populations of NYC and similar cities have always believed that they were “on the same team” as the very top elite. That is starting to change.

It would take 10-20 years, much like the conservative revolution took 30-40 years, but if the Left ever comes back to life in a meaningful way and starts to frame the debate in a way that Walmart wage earners cares about, these will be the history points we tied to it. OWS as a forerunner and Piketty as an inflection point that started to change the minds of people of influence and give those changed minds a rallying point. If those people of interest were to ever get it together (still unlikely!) that would be the politics that could one day drive electoral results.

AndrewL April 30, 2014 at 8:33 am

I don’t understand why inequality is even an issue at all. If my neighbor is accumulating “wealth” at a much faster rate than Ii (in a r > g fashion) Does that depress my wages? or does it increase my wages? or does it increase job opportunities?

I should be thanking my neighbor right? Allocating capital to where growth is such that r > g means higher wages and/or more job opportunities right?

Andrew' April 30, 2014 at 9:08 am

Has anyone heard a progressive give equal time to saying “but try not to be jealous?” 49% time?

Jon Rodney April 30, 2014 at 10:34 am

I don’t think it’s clear what the macro effects are of faster capital accumulation at the top. There are distributional effects that could work against each other:

- Having greater total capital should increase average wages over time
- To the extent that capital owners are substituting capital for labor, their income is coming at the expense of the median worker … i.e. the increased capital may increase total income, but decrease income at the bottom of the scale
- To the extent that income becomes further concentrated at the high end of the income scale, in the hands of workers with a lower propensity to consume, demand-side factors may have a negative impact on overall growth

I don’t think there’s strong evidence as to the importance of these different effects, or how they might interact with each other in different economic contexts.

AndrewL April 30, 2014 at 12:23 pm

well, given that there are only two things you can do with your money: Spend it or invest it. If people are not spending, then they are investing, if they are investing then something has to come out of the investment (R&D-> product development) that they will want to spend on.

So I say, let the capital accumulate at the top, it *should* speed up the development of new products that benefit everyone. (I say *should* because I’m leaving out some exogenous factors that for better or worse prevent this)

Jon Rodney April 30, 2014 at 1:28 pm

Your “should” leaves you a lot of wiggle-room, but it seems to me there isn’t cause for a high-level of confidence that capital accumulation must lead to higher economic growth in all circumstances. Just as it isn’t crazy to think that raising taxes beyond some point will fail to increase revenues, it also isn’t crazy to think that increasing the concentration of wealth beyond some point will constrain economic growth and/or median wages. If all the wealth in the world were concentrated in the hands of one person, I don’t think that would bode well for the broader economy. The debate should be more focused on gathering evidence as to where harmful effects of inequality start to have an impact.

wiki April 30, 2014 at 8:45 am

Since Krugman’s columns are not primarily read by people below the 75-80% income level his anecdotal observations indicate that this is further evidence that the concern about inequality is about the fears of the upper middle class and lower rich, as well as the socially elite but income poor cosmopolitans who resent the very rich.

Jonathon Martin April 30, 2014 at 8:51 am

This is an interesting post. I think there are two things to consider. The first is whether it is true that wealth is really masked so well in the US so as not to stoke envy and resentment. I can’t say personally since my experience there is too partial. In the UK, disparities of wealth are very evident. In London most neighborhoods have rich and poor living side by side and wealth in the UK generally is not well hidden compared to Finland, where you never see ostentatious housing from the main roads. (Interesting side note: Finns consider themselves very jealous despite this).

Second though, what about the effect of the media? My material ambitions were certainly raised as a child watching Dallas and Dynasty. Are we to believe that the media we consume may fuel ambition but not stoke envy? It’s possible but it seems unlikely.

Just Another MR Commentor April 30, 2014 at 9:09 am

Envy is merely a symptom of a low IQ. Intelligent people realize that their position is a result of the good or bad choices they made at birth with respect to parents and generic makeup.

Andrew' April 30, 2014 at 9:14 am

“Finns consider themselves very jealous despite this”

Or is it “this…because Finns consider themselves very jealous.”

Real estate agents drive nice cars. The auctioneer next door does not. What types of lawyers drive what types of cars relative to their incomes and bank accounts by country?

Does a concern with inequality signal a shift in the makeup of the economy?

Jeff April 30, 2014 at 5:30 pm

I think it varies quite a bit from city to city. MacLean might be as Tyler describes, with the biggest homes being off the beaten path, but I don’t think that holds true for many if not most other cities. Lots of older towns, in particular, will have big gilded age mansions right next to areas which maybe were middle class neighborhoods 50-60 years ago, but have long since given way to blight and poverty. Baltimore, for example, where I live. Chicago, I’ve heard, is kinda the same way.

Mesa April 30, 2014 at 8:56 am

Perhaps inequality increases at one scale subsidize decreases at other scales. Herewith measurements of inter and intra country inequality:

http://www.aei-ideas.org/2013/11/actually-global-income-inequality-seems-to-be-on-the-decline/

It wouldn’t be hard to make the argument that the forces that increase the standard of living for the poorest via “globalization” and “information technology” broadly defined may come at some cost to the middle classes in developed countries (note: not a zero-sum or causation argument here). Here it seems to be mostly a China effect.

Also, this seems to be more like reversion to the mean and effects of under-perfomance in the US educational system, but inequality is being reduced on the developed country level as well:

http://www.nytimes.com/2014/04/23/upshot/the-american-middle-class-is-no-longer-the-worlds-richest.html

It’s interesting that this type of reduction of inequality is being pitched as a negative, or “failure to keep up”. Aren’t we all citizens du monde? If inequality is so bad why aren’t we happy if we decrease inter-country inequality through our poor performance in most income deciles? Aren’t we happy that other countries’ middle classes don’t suffer the angst of knowing they make less than our middle class?

Just Another MR Commentor April 30, 2014 at 9:19 am

But the REAL way to cure inter-nation inequality is of course Open Borders and free immigration yet no one wants to discuss implementing this highly effective solution.

Stan April 30, 2014 at 8:58 am

If r denotes the rate of return on assets and g the overall rate of economic growth, Piketty’s research shows that r > g under normal circumstances. If the financial community knew its own best interests, it would buy Piketty’s book in bulk and give it away to everybody who wonders into a stockbroker’s office. Instead of disparaging Piketty, Wall Street should be hailing his research. He’s this generation’s Gordon Gekko.

Brian Donohue April 30, 2014 at 9:03 am

It was easier to sympathize with egalitarians when ‘exploitation’ was the argument.

Mesa April 30, 2014 at 9:05 am

“Inequality” is a great word choice for the left, as it implies an inherent unfairness which needs to be fought against by an enlightened activist government. “Aggregate Demand Problem” somehow sounds like it places the blame on consumers. The left and it’s constituents love top outsource blame and responsibility, “Inequality” is a much better word, whether or not it is a real issue.

Andrew' April 30, 2014 at 9:11 am

“The 1%” was even better. Even the salutatorion could get behind the rage.

chuck martel April 30, 2014 at 12:04 pm

“there’s no question that inequality gets a bigger response than demand-side macro.”

The former is an appeal to meaningless emotion, the latter abstract academic jargon. Easy to see which would appeal most to the masses.

babar April 30, 2014 at 9:55 am

the reason that inequality is more salient to the 1% than to others is that the 1% finds itself in conflict with the 0.1% for many of the goods that the 1% wants.
manhattan (and soon, brooklyn) real estate for example.

for instance, a friend of mine who rents in manhattan says that in the past 5 years is increasingly “vacant”, which means owned but not inhabited by the (global) 0.01%. and it’s not just housing. there are fewer people on the streets which changes the character. and commercial landlords who lease to restaurants and investors who fund restaurants are all trying to focus on the highest echelon as well, especially because real estate carry costs have been very low (and strongly negative if you include prices going up).

i think this is a case of inequality helping a group for a while – the gentrification of manhattan and brooklyn has been an excellent thing for the top 1%-5% – but starting to hurt those groups at the levels we’re seeing.

gregorsam April 30, 2014 at 10:03 am

A very strange framing of the issue.

What happens if we apply the same method (who and how many care) to other major economic issues? What will be the end result of policy decisions made on this basis?

jseliger April 30, 2014 at 10:04 am

I’ve never wanted to live there, not even at lower real estate prices. You don’t stumble upon the nicest homes unless you know where to look. Middleburg is wealthier yet, but it has few homes, feels unreal, and most people don’t go there anyway.

This almost perfectly describes greater Seattle as well: how many people outside the area have heard of Medina? Even within the area, most people who mention it only do so as “the place where Bill Gates lives,” despite the many other freakish mansions there. Those who live in Issaquah (further to the East, away from Seattle itself) don’t appear to care what happens in Medina and even if they did their political ability to affect Medina would probably be limited.

The only place I’ve lived which seems to generate envy of major concentrations of wealth is New York, perhaps because a) of the demographics, or at least the people I tend to hang out with and b) many average people see / walk by very expensive buildings. I regularly walk by the new skyscraper on 23rd and Park or Lex where Rupert Murdoch is reputed to have bought a $80 million penthouse. When I live in and near Seattle I never walked by or even got near Bill Gates’s house.

Among those I know who have been to Bill Gates’s house, all are Microsoft interns who are more likely to want to be the next Gates than they are to resent him.

Beefcake the Mighty April 30, 2014 at 9:19 pm

Seattle and NYC are very liberal cities, yet you correctly note the difference in political agitation. I wonder why that might be?

anon April 30, 2014 at 10:06 am

If they do, they more likely admire well-groomed horses and still read Princess Diana biographies

Great to see Tyrone contributing!

(Can you get him to do a puffin post?)

Paul April 30, 2014 at 10:42 am

I suppose inequality is what you pivot to when you cannot generate growth.

T. Shaw April 30, 2014 at 11:41 am

On the contrary, there is economic growth in McLean and the DC suburbs.

prior_approval April 30, 2014 at 11:44 am

Thanks to the American tax payer – may they long support the residents of the DC metro region.

Or is that the wrong sort of growth?

Brian Donohue April 30, 2014 at 11:54 am

Yes.

T. Shaw April 30, 2014 at 11:40 am

Everything that guy writes is post-modern bullshit.

Jon April 30, 2014 at 12:00 pm

I think TC is making generalizations from his own perspective; which a majority of Americans do not share. In fact one can look at polls and see that people are disatisfied with income inquality (e.g. http://www.gallup.com/poll/166904/dissatisfied-income-wealth-distribution.aspx ) , a majority of Americans support a substantial increase in the minimum wage, and cuts in Medicare, Medicaid, and Social Security are less popular than tax increases….And although a majority of Americans are satisfied with the ACA, many of those want a single payer system. The number that want it repealed or weakened are a minority.

chuck martel April 30, 2014 at 12:07 pm

The next real poll will be in November. The results, however, won’t mean much.

Jon April 30, 2014 at 12:08 pm

From the US census (2010) 81% of the population lives in urban areas and 19% live in rural areas. True, rural areas have an outsized influence in the political system due to the structure of electoral maps; but remember–who won Ohio in 2012.. The fact is New York is more representative of America than rural Ohio.

The population that ultimately provides the most votes for democrats is not the latte sipping liberals who provide the money and write articles that TC has in his mind; but lower income people who migrated to the urban area.

Phil April 30, 2014 at 12:28 pm

McLean is one of the wealthiest towns in Virginia, but if you drive through the downtown frankly it still feels a bit like a dump.

This is a really stupid point. McLean doesn’t really have a downtown. Nor is it really a town. It’s a bunch of large suburban houses and McMansions on large lots. It has a few strip malls, such as the one you pictured and called “downtown”, that were built back in the 70s or so and thus look dumpy and old fashioned.

Wealthy people don’t live in McLean because they think it’s a nice town or has a nice downtown.It’s not really a town nor does it have a real downtown. It’s a suburb with some strip malls. Wealthy people live in McLean because they want to live in large suburban houses on large lots with lots of room between neighboring houses, and live relatively close to the city. McLean is really the only area in northern Virginia where you can have this. In most other closer in suburbs, the houses are a lot smaller and it’s much more crowded. And most areas with large houses on large lots are much further out in the exurbs, an hour or more away from the city.

Sean P. April 30, 2014 at 2:27 pm

I didn’t care much about income inequality when people wealthier than me were all living in big houses out in the suburbs. I care a great deal about income inequality now that people wealthier than me want to live in the same hip in-city neighborhoods that I want to live in.

Oderus Urungus April 30, 2014 at 9:21 pm

The Cuddlefish of Cthulu should be shoved up your ass.

FUBAR007 April 30, 2014 at 2:38 pm

“I see the inequality issue as having high salience for NYT readers, for Democratic Party donors, and for progressive activists. It has very little salience for the American public, especially with say swing voters in southern Ohio or soccer moms.”

As the inequality argument is couched, you’re right; it’s an abstract football to be tossed about in the political-entertainment complex.

That said, see what happens to the polls when you start asking about the skyrocketing cost of college education and the collapse of the middle class job market. Those Ohio swing voters and soccer moms will perk right the f**k up.

The liberals are epic failing on this because they’re focusing on the wrong type of inequality. The real inequality problem is inequality of opportunity compounded by the increasingly stochastic and decreasingly meritocratic nature of the economy. Hard work and playing by the rules aren’t enough to succeed anymore. Outrage at that is the flag to rally the masses around.

CP April 30, 2014 at 3:03 pm

Many conservative-leaning people believe inequality is acceptable because it simply represents meritocracy. In this view, everyone is simply getting what they deserve, both rich and poor, so justice prevails and there is no legitimate worry.

What these people are blind to, or choose to deny (some the former, some the latter), is that inequality tends over generations to feed beliefs of caste and will eventually undermine and collapse meritocracy itself.

Humans are amazingly gifted at rationalizing things. Someday the grandkids of a Mr Self-Made Millionaire—people who were born on third base—will tell themselves that they hit a triple. Eventually it will shape a situation in the U.S., which already exists in various countries, where someone born in a slum has no realistic odds to pull himself up by his own bootstraps. He is guaranteed, in reality, by practical odds, to remain a slumdog until death, despite any cover story the elite tell themselves about how he could bootstrap himself upward if he simply were a smart enough and hardworking enough entrepreneur. The one-in-ten-thousand outlier who does that (most likely with some crime along the way, such as success at drug dealing) will be held up as “proof” that “you *all* could do this if you weren’t lazy and stupid.”

Because of the psychological flaws of humans, meritocracy only works when there is a decent level of education, opportunity, standard of living, and class mobility available to all the contestants. Caste systems, no matter how they are rationalized, do not offer such an environment to most people.

There are conservatives in the U.S. today who are secretly looking forward to a time when the U.S. looks like Mumbai—bejeweled elites flying over megaslums. That will not be a victory for meritocracy if it happens. And the rabble who were encouraged to vote conservative because it was allegedly for their own good will not be well served by it.

mulp April 30, 2014 at 4:32 pm

You fail to understand the objective of free lunch economics.

Eliminate all workers because they are drags on the economy and profit growth.

Increase the tax cuts that put money in the pockets of consumers, who after eliminating workers, will be the 99%. The 99% will spend the money tax cuts put in their pockets faster and faster as the 1% get wealthier – the wealth effect drives consumption, not labor income.

Once the economy is perfected and is 1% capitalist and 99% consumers spending the money tax cuts put in their pocket to increase profits from a laborless production system driving up profit, the virtuous cycle of wealth creation for the 1% will drive increased consumption by the 99% who get more money in their pockets from the tax cuts and the greater wealth of the 1%.

Beefcake the Mighty April 30, 2014 at 9:23 pm

As opposed to the liberals who want the U.S. to look like Tel Aviv.

mulp April 30, 2014 at 4:19 pm

“What swing voters really hate is inflation, probably irrationally so.”

So, the Wall Street engineered asset price inflation without any labor used, in fact by killing jobs to boost profits from stagnant or even falling production, is irrationally hated by swing voters?

Imagine that – swing voters see a free lunch when they see it.

TANSTAAFL, and the swing voters apparently know it.

If government deficit spending were not added in when computing GDP, would anyone be cheering the inflation in stock prices?

Peter K. May 1, 2014 at 8:32 am

Well the American public is often stupid. They’re being lied to by the corporate media day in and day out. And yet they chose Obama two elections in a row. They buy his story more than Romney’s “moocher-class” narrative.

Floccina May 12, 2014 at 3:18 pm

I bet that almost nobody in the poorest county on the USA, Kiryas Joel cares about inequality at all.

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