Tyler, Greg and Brad all forget the Coase theorem – all externalities are dual.  The solution to envy is not to tax the rich but to tax the envious.  To be envied is unpleasant.  People want to be admired but not envied.  To be envied is one step from being hated.  (Consider how much crime is motivated by envy.)  It’s envy which imposes an externality on the rich.  Make the envious pay for their ugly preferences.

Surprising analysis?  Not really – should gays be taxed because they make some people uncomfortable?  Hell no.  Tax the bigots for making gays feel unwelcome. 

Don Boudreaux has a superb post over at Cafe Hayek whacking the myth that health care costs put America at a competitive disadvantage or that a government takeover per se would lower said costs.  Don puts comparative advantage to good use in this clip:

Even if all American producers suffer production-cost increases of 15
(or whatever) percent, some American firms will nevertheless enjoy a
comparative advantage in production compared with foreign firms.  The
continued relevance of the principle of comparative advantage does not
mean that such cost increases are inconsequential; Americans will be
poorer than otherwise if American producers are burdened with the need
to pay higher costs without any offsetting increase in quantity or
quality of output.  But the problem isn’t international
"competitiveness"; many American firms will continue to export.  The
problem is costs that are unnecessarily high — a problem that
ultimately is reflected in lower standards of living of consumers who
buy from, and workers who work for, American businesses.

But read the whole thing.

Andrew Samwick asked a very good question last week: if Paul Krugman says that rising wages at the top are due to nasty Republican policies and not due to rising returns to education/skill how does he explain his own high income?  Unfortunately Mark Thoma interpreted Samwick to be saying that Krugman was hypocritical.  That, however, was not the point at all.

The point is that Krugman is a very good example of someone in the top 1% of income – someone whose earnings have increased tremendously in the 1980s and 1990s thus generating much income inequality.  Krugman wants to say that earnings in the top 1% have gone up because of a reduction in the minimum wage or fewer labor unions.  Huh?  Remember, it’s not just inequality that has increased it’s absolute earnings at the top – where are these earnings coming from?

The idea that reductions in the bottom generate big earnings at the top reminds me of the theory, once popular among theorists of development, that the way to get rich is to steal from poor people.  At best what you can get from lower labor earnings at the bottom is a slightly higher return to capital in general – not a big return to a few people at the top.

Krugman says it’s Republican policies that are generating inequality  Or does he?  Let’s go to the tape.  Here’s what Krugman had to say when it was revealed that Enron paid him $50,000 for a speaking engagement.

My critics seem to think that there was something odd about Enron’s
willingness to pay a mere college professor that much money. But such sums
are not unusual for academic economists whose expertise is relevant to
current events…

Remember that this was 1999: Asia was in crisis, the world was a mess.
And justifiably or not, I was regarded as an authority on that mess. I
invented currency crises as an academic field, way back in 1979; anyone
who wants a sense of my academic credentials should look at the Handbook
of International Economics, vol. 3, and check the index….

And I wasn’t an ivory-tower academic. In 1994 I had published an article… in August 1998 I had advocated temporary
capital controls …in 1998 I had taken on the Japanese
situation, with a series of papers…

I mention all this not as a matter of self-puffery, but to point out
that I was not an unknown college professor. On the contrary, I was a hot
property, very much in demand as a speaker to business audiences: I was
routinely offered as much as $50,000 to speak to investment banks and consulting
firms. They thought I might tell them something useful. For what it’s worth,
Citibank officials said – you can check it out with a Nexis search – that
a heads-up I gave them in 1996 about the risks of an Asian currency crisis
saved them hundreds of millions of dollars.

Now all this is amusing but that’s not my point (really, it’s just a side-benefit.)  My point is that Krugman’s earlier explanation for his high income was all about the rising return to education ("Look at all my papers!")  I would supplement this basic story with a greater winner-take-all market, more economies of scope etc.  (See also Tyler’s comments.)   

I think Krugman’s earlier explanation for his own income is mostly correct.  Where Krugman and I apparently disagree is that I think that the very same explanation Krugman gives for his income also explains why other people in the top 1% are earning more.  Krugman, however, no longer wants to talk about education and skill he wants to talk about nasty Republicans.

So let me rephrase Samwick’s question.  Paul, If you’re not so smart, why are you so rich?

I’m looking for a list of big firms that went under, i.e. either they went bankrupt or out of business in some sense.  I’m interested especially in firms that succumbed to ordinary market forces so Texaco which went bankrupt due to a lawsuit doesn’t count and neither does Enron.  Famous names that once dominated their field are ideal.  Examples so far include:

KMart
Pan Am
Atari
Penn Central
Polaroid

Comments are open for your suggestions.  Thanks in advance.