Paul Krugman has a new blog hosted at the NY Times, titled "The Conscience of a Liberal". If the first post is any indication, Prof. Krugman has no conscience at all, at least when it comes to choosing between truth and left-pleasing spin. His topic, probably not for the last time, is income inequality, and he recycles with even greater emphasis a howler we targeted back in 2002. Here is Krugman on what many of us have learned is the Great Depression:
The Great Compression: The middle-class society I grew up in didn’t evolve gradually or automatically. It was created, in a remarkably short period of time, by FDR and the New Deal. As the chart shows, income inequality declined drastically from the late 1930s to the mid 1940s, with the rich losing ground while working Americans saw unprecedented gains. Economic historians call what happened the Great Compression, and it’s a seminal episode in American history.
...Most people assume that this rise in inequality was the result of impersonal forces, like technological change and globalization. But the great reduction of inequality that created middle-class America between 1935 and 1945 was driven by political change;
The Great Compression was "created" by FDR and the New Deal? I am sure libs would like to think so, but an alternative view is that the Great Depression and WWII were the real causes of income compression, and FDR and the New Deal were responses to the depression. James Scrivener had fun with this a few years ago when Krugman made a similar point.
Of course, as a policy prescription, urging Dems to inflict a depression and world war on the rest of us in order to achieve Krugman's vision of greater income may seem a bit harsh, so I can see why he shies away from that.
Let's cut to Piketty and Saez, whose work has received glowing praise from Krugman. These excerpts are from their 2001 paper:
Before WWII, the highest incomes were overwhelmingly composed of rentiers deriving most of their incomes from their wealth holdings (mainly in the form of dividends).
...The large depressions on the first part of the century destroyed
many businesses and thus reduced significantly top capital incomes.
...This very specific timing, together with the fact that very high incomes account for a disproportionate share of the total decline in inequality, strongly suggests that the shocks incurred by capital owners during 1914 to 1945 (depression and wars) have played a key role. The depressions of the inter-war period were far more profound than the post-WWII recessions. They destroyed many businesses and had a stronger impact on capital income than labor income.
No mention of the New Deal as a cause of income compression. However, folks looking for a government role can find this:
The negative effect of the wars on top incomes can be explained in part by the large tax increases enacted to finance the wars. During both wars, the corporate income tax (as well as the individual income tax) was drastically increased and this reduced mechanically the distributions to stockholders (see our discussion below and appendix A4).
Somewhat helpful, but since the US only formally entered the war in 1941 this does not provide much support for fans of the New Deal.
In a bit of a cart and horse reversal, Piketty and Saez also argue that some of the government programs of the New Deal changed societal norms about acceptable levels of (high) pay. Alternatively, one might have thought that changed norms made these New Deal programs possible.
The structure of wages narrowed considerably during the 1940's, increased slightly during the 1950's and 1960's, and then expanded greatly after 1970. The era of wage stretching of the past two decades has been a current focus, but we return attention here to the decade that was witness to an extraordinary compression in the wage structure. Wages narrowed by education, job experience, region, and occupation, and compression occurred within these cells as well. For white men, the 90-10 differential in the log of wages was 1.414 in 1940 but 1.060 in 1950. By 1985 it has risen back to its 1940 level. Thus the recent widening of the wage structure has returned to it a dispersion characteristic of fifty years ago. We explore various explanations for the rapid compression in the wage structure during the 1940's and for its maintenance during the subsequent decade or more. We first assess the hypothesis that the Great Depression left the wage structure in 1939 more unequal than in the late 1920's, but we find evidence to the contrary. World War II and the National War Labor Board share some of the credit for the Great Compression. But much belongs to a rapid increase in the demand for unskilled labor at a time when educated labor was greatly increasing in number. These same factors caused the wage structure to remain compressed until its expansion during the past two decades.
Hmm - high demand for unskilled labor coupled by a low supply. How is Krugman going to recreate that? I have no idea what his plans might be for the demand side, but are libs really planning to close the borders to reduce the supply of unskilled immigrants? I don't think so.
Well. Krugman wants to return us to a happy place we reached by way of war and depression, a place where minorities and women could not work, and where illegal immigrants toiled in the fields but nowhere else. And he wants to pretend that is not how we got there, and not where we were. Good luck. Let's hope his subsequent blog offerings show a bit more of a basis in reality.