22 Apr 2014

Yet More Krugman Klarifications on the 1% Stuff

Krugman 32 Comments

This is more for posterity than anything else, but check this out. In today’s post Krugman writes:

I happened to notice Greg Mankiw citing some bogus claims that the one percent is an ever-changing group, not a persistent elite, and I thought “Wait — didn’t we deal with that one long ago?” And that brought to mind the piece I wrote for the American Prospect 22 years ago, “The rich, the right, and the facts.” (It doesn’t say this on the Prospect site, but it was indeed published in 1992). See the section on income mobility.

The truth is that inequality denial is largely a crusade of cockroaches — the same bad arguments just keep coming back.

Oh, and I do think that my old piece looks surprisingly contemporary. In particular, I was focused on the one percent even then.

This is fascinating for several reasons:

1) Krugman makes it crystal clear that he is talking about the 1% (not the 0.01% as his defenders tried to say, when the awkward $225,000 CUNY post to study income inequality story broke), and that he’s talking about annual income, not wealth. Incidentally, I should point out that I believe Krugman’s defender in Slate, who wrote, “As Krugman has made clear on more than one occasion, his quarrel is not with members of the top 5 percent or even with members of the top 1 percent. The real problem, in his view, lies with the top 0.01 percent.” Just as I believe Krugman now, when he tells us, “I was focused on the one percent even then.” Now you guys know why I coined the term Krugman Kontradiction.

2) This raises the very ironic fact that back in 1992, Krugman was probably not in the 1%, whereas today he almost certainly is, at least depending on the payment of his book advances. (In addition to his $225,000 salary for raising awareness of income inequality, Krugman can command a high speaking fee if he wants, he gets royalties on his books, he probably has a lot of financial assets since he never had kids, and–something I had forgotten before–he runs a hugely popular blog, for which the NYT might pay him a lot. Although I don’t know, since it’s a great perch for him so maybe he doesn’t need to get paid much.) So I don’t know, I just think it’s really really weird that Krugman quite specifically blasts the 1% of income earners, and says there’s not much mobility in the US, without ever mentioning to his readers the fact that he climbed up and now resides in the 1%. (I actually have never read the biographical pieces on Krugman in detail; I am assuming he comes from a middle class background, since he has written several articles and given speeches bemoaning the loss of Middle Class America. If he came from a rich family, then that’s even weirder.)

3) Regular readers of Krugman know that he often explains the wonderful fact-checking of the New York Times, in contrast to conservative-leaning newspapers. Well, the article that Greg Mankiw cited–which Krugman says contains “bogus claims”–ran in the NYT.

4) The “bogus claims” about the 1% from the NYT piece that Mankiw linked include this: “Although 12 percent of the population will experience a year in which they find themselves in the top 1 percent of the income distribution, a mere 0.6 percent will do so in 10 consecutive years.” So think about what that means: If you’re looking at “the 1%,” fully 40 percent of them will not be a part of that group for the next decade. (In contrast, if “the 1%” were a stable group, then 1% of the US population would be in the top 1 percent of income earners for 10 consecutive years–not the actual figure of 0.6% of the US population.) So that’s a pretty good indication of how stable (or not) the elite 1% are. Is Krugman saying that these data are faked?

5) No, as far as I can tell, Krugman is simply throwing some other stats around. He doesn’t offer a single stat (in the section he tells us to examine, on income mobility–I didn’t read the rest of the 1992 article) concerning the 1% directly. The best thing in his defense is where he cites two studies that find “about half of the families who start in either the top or the bottom quintile of the income distribution are still there after a decade, and that only 3 to 6 percent rise from bottom to top or fall from top to bottom.” Thus, to show how bogus the claims about the 1% are, Krugman gives claims about quintiles.

32 Responses to “Yet More Krugman Klarifications on the 1% Stuff”

  1. Major_Freedom says:

    It’s hilarious when Krugman’s supporters contradict Krugman while believing they are defending him…

  2. Mule Rider says:

    It galls me less the actual things Krugman says (admittedly, though,, I find most of them deeply disturbing) than the fact that we live in a society where so many people have given him the unofficial title of “America’s foremost public intellectual.” Sorry, but not only does that statement make me throw up a little bit in my mouth, but it also causes me to be very cynical about where we’re headed as a country.

  3. Matt M (Dude Where's My Freedom) says:

    “about half of the families who start in either the top or the bottom quintile of the income distribution are still there after a decade, and that only 3 to 6 percent rise from bottom to top or fall from top to bottom.”

    I feel like this is an area where the left and right often talk past each other and everyone needs to more fully understand what both sides are saying.

    When the left complain about a lack of mobility – this is what they mean. That the very poor are quite unlikely to become very rich. When the right promotes how we have great mobility – they are usually talking about moving from one quintile to another, but not necessarily making the huge “top to bottom” (or bottom to top) leap.

    If you come from a terribly poor and disadvantaged background, it is probably unlikely that you’ll ever join the top 1%. But if you come from a middle-class background, you have a great chance (like Krugman himself presumably did). Similarly, if you’re born into extravagant wealth, it’s probably unlikely that you’ll end up on food stamps any time soon, but it’s not that unlikely that you’ll eventually fall out of the top 1%.

    • Bob Murphy says:

      Matt M right, and that’s why I included those stats in particular–they were the strongest ones that Krugman offered to make his case about limited mobility.

      But, he quite clearly is making it about the 1%. He said so explicitly. The claims that he said were “bogus” were specifically about the 1% (or at least some of them were), and prima facie they showed “the 1%” is not a stable group of people by any stretch. So Krugman’s counter statistics don’t really address what he himself made the crux of the argument.

      • Matt M (Dude Where's My Freedom) says:

        Another thing worth discussing – would we really even WANT to live in a society where income mobility was such that say, half the people in the bottom quintile moved to the top, and half the people in the top moved to the bottom?

        It would seem to me that the most likely places to find statistics like that would be in highly unstable societies undergoing massive economic, demographic, etc. shifts. It would be a very un-stable society by default. Perhaps a depression, or a revolution, or some other shocking and unpleasant event would probably be necessary to create the conditions of “income mobility” that Krugman and co. seem to want.

        Generally speaking, we want it to be *possible* for the very poor to become very rich, and vice versa. But if that’s happening constantly, it’s probably a sign of a very troubled and unstable economy.

  4. Cosmo Kramer says:

    Why not just span out and talk about incomes world wide? Obviously we should take Krugman on in his context, but it is silly to attack OUR evil 1% and ignore that most American households fall into this evil Kategory in terms of world income.

    http://www.globalrichlist.com/

  5. Innocent says:

    Okay I think the point the right makes is the following. If you want to work for someone else your whole life then you will probably only make a median or substandard wage barring you have a few skill sets that are in high demand. What you CAN do however is risk everything you have and go into business for yourself and you will have the opportunity ( not guaranteed by any means ) to make a good living for yourself.

    The Left comes in and says, hey it is not fair that you exploit people to make money for YOURSELF, it is not as though you built anything, the workers did and they need additional compensation above what you are offering them. Which if people were slaves I would agree with, but they are not so I always have a hard time following this line of arguments.

    Mobility one way or the other is then a consequence of choice. Can a low income move from the bottom to the top, to be honest it is pretty hard. But can they move from the bottom to the next rung, and then the next generation move up from there and so on? I think so.

    I remember reading a report in which 25% of the lower income quintile moved to the next quintile. The author disparaged the fact that this shows how hard it is to move up. I took something else away from it, think of how many people are MOVING DOWN!!! That is the thing that really scared me.

    Finally please show me a report, any report, that shows that someone that has a 99% gap between top and bottom can easily go from the bottom to the top. Heck Look at test scores, how easy is it to take someone who scores at the 1% level and take them to the 100%? It is ‘POSSIBLE’ but ‘NOT LIKELY’.

    But like all things if the distance is less then it is an easier distance to go through. So someone at the 1% and climbing to the 10% is VERY doable. and then climbing a little more is possible from there etc and so on.

    • Matt M (Dude Where's My Freedom) says:

      “I took something else away from it, think of how many people are MOVING DOWN!!! That is the thing that really scared me.”

      Indeed. For Krugman and Co, the general assumption seems to be that the ONLY people moving up are heroic, hard-working, virtuous poor people who “deserve” wealth but were, through no fault of their own, born into hardship. And the ONLY people moving down are worthless, lazy, spoiled, brats who were born into wealth they never deserved. Anyone who moves down is assumed to be some sort of jerk who never deserved to be up in the first place.

    • Cosmo Kramer says:

      The problem is that most ignore who it is that make up the bottom rungs of the pay ladder. The young and inexperienced, typically. We get in his habit where we act like once we get employed, we are stuck at that level for life. If you are worth a damn, you move up. Period.

      There is tremendous income mobility. And we must also consider tht some at the very top are only there due to a spike in their yearly reported earnings. Also, anyone in the top can easily lose money one year….. Meaning they go from top to very bottom. There is NO such risk If you earn a salary. Thank god there are people that put their assets at risk for the HOPE of profits.

      • Matt M (Dude Where's My Freedom) says:

        A lot of people simply don’t WANT to move up anymore. Culturally, we continue to demonize things like risk and profit. A whole bunch of people out there just want a “good enough” 9 to 5 job that can give them a “middle class” lifestyle and they’re totally content to hold that forever. Just give me my basic income and my government subsidized health care and my social security for retirement and that’s all I’ll ever need. After all, I’m not some greedy capitalist. Down with the 1%!

        • K.P. says:

          Is that not just a phase of (modern, comfortable) life? I mean, the Boomers famously went through that too and they eventually down from such ideological heights.

    • Tel says:

      Having skills in high demand does not just happen, that itself is an investment of time and money with risk involved.

  6. Bob Roddis says:

    [Inequality] plunged during the Great Depression and edged down in World War II, and then steadied out, until we get to the 1970s. Something happened then that caused income inequality to start soaring. The top decile’s share of income went from something like 33% in 1971 to above 47% by 2010.
    Hmmm. What could account for that? Could it be the last broadcast of the “Lawrence Welk Show?

    ******

    From 1947 to 1971, unemployment in America ran at the average rate of 4.7%; since 1971 the average unemployment rate has averaged 6.4%. Could this have been a factor in the soaring income inequality that also emerged in the age of fiat money?

    This is the question the liberals don’t want to discuss, even acknowledge. They are never going to get it out of their heads that the gold standard is a barbarous relic. They have spent so much of their capital ridiculing the idea of honest money that they daren’t open up the question. It doesn’t take a Ph.D. from MIT or Princeton, however, to imagine that in an age of fiat money, the top decile would have an easier time making hay than would the denizens of the other nine deciles, who aren’t trained in the art of swaps and derivatives.

    http://davidstockmanscontracorner.com/pikettys-1971-inflection-point-was-it-lawrence-welks-last-show-or-sound-moneys-last-stand/

    • Lord Keynes says:

      On the post-WWII era, Stockman has no idea what he is talking about.

      The gold standard effectively came to an end in the 1930s. Bretton Woods was just a system where gold could be got for US dollars in the international payments system.

      That didn’t stop central banks all over the world from creating base fiat money at will, and nations all over the world pursuing Keynesian full employment policies from the 1940s to early 1970s.

      That is why unemployment fell to historically unprecedented lows from 1947 to 1971.

      • Andrew' says:

        Hmmm…I wonder if other things might have happened right before 1947 and after 1971…

        Nope. I guess all that happened was people became Keynesians at exactly that point and then changed their mind in ’71.

      • Bob Roddis says:

        1. Since no one has noticed, please note that my responses to LK for about the past year have been short and limited. I will continue that process.

        2. The gold exchange process still placed a substantial brake upon unfettered funny money creation.

        3. The unsustainable pre-1971 Keynesian full employment booms all ended in busts. There was a reason the US could not pay its bills in 1971.

        4. The fundamental dispute with LK and the Keynesians is about the underlying process and nature of human activity which is never addressed by them.

        5. Stockman is great. He and his bloggers constantly address fiat money as facilitating theft by the elite, funny money distorting economic calculation and Keynesians who are clueless regarding Austrian analysis. My former concerns are being assuaged.

        • Lord Keynes says:

          (2) No, it did not. No country needed to supply gold for US dollars except the US, and the US just wasn’t constrained by that need. As soon as it proved a problem even Bretton Woods was abandoned.

          (3) just evades my point, and tacitly concedes it: the low employment all over the world in that era was not caused by the US sometimes giving gold for US dollars to other central banks in international payments, it was caused by full employment fiscal policy.

          • Bob Roddis says:

            1. You have evaded the subject for the day which is what causes inequality. Elite access to and great skill regarding funny money emissions explain inequality. Further, once a Keynesian-induced bust has ground down the economic fortunes of the masses, the elite is in a position to buy up the scraps and further their consolidation.

            2. Your aggregate data-based “analyses” (like all Keynesians) ignore the underlying violent interventions, price distortions and Cantillion Effect thefts that characterize Keynesian policy, a policy that exists to solve a problem that does not exist and creates the problems that do.

            That’s enough from me. I’m outta here.

            • Philippe says:

              Bob,

              “Elite access to and great skill regarding funny money emissions explain inequality”

              The charts that I’ve seen so far show inequality taking off in the 80s and 90s, rather than the 70s, which would seem to indicate that other factors were at work.

              However I had a look at the page you linked to, which has a chart from Thomas Piketty, and this chart shows US income inequality rising in the 70s, then continuing to rise through the 80s and onwards.

              Nonetheless, according to the chart, income inequality in Europe only started increasing in the 80s (it was falling in the 70s), and to a much smaller degree than in the US.

              European countries also had fiat money during this time, but according to the chart their experience of changing income inequality was very different to that of the US.

              In Europe, in 2010, income inequality was apparently back to the level it was at in 1945, whereas in the US it was apparently the highest it has ever been since at least 1900.

              All of this suggests that the real culprit is probably not just fiat money, but something else.

              Also, in your exchange with LK you argued that prior to 1971 fiat money creation was limited to a degree by the gold reserve system. If that is true then it doesn’t really support your argument that fiat money is to blame for rising inequality, as income inequality was very high prior to 1930, when it began to fall.

              • Bob Roddis says:

                There seems to be a sharp rise in the rate of inequality starting around the time of the enactment of the Federal Reserve Act in 1913 along with the fascistic economic controls of the “progressives” to prosecute the insane entry of the USA into WWI.

              • Philippe says:

                Bob,

                I had a look at Piketty’s website and found the following charts.

                1. This chart shows income inequality in the US between 1910 and 2010. It shows income inequality rising in the 1980s, not the 1970s. The chart shown on David Stockman’s site is misleading as it only has one data point at the beginning of each decade.

                http://piketty.pse.ens.fr/files/capital21c/en/pdf/F0.I.1.pdf

                2. Piketty doesn’t have any charts for income inequality before 1900. This chart, however, shows wealth inequality in the US (the share of wealth held by the top 10% and 1%) between 1810 and 2010. It shows wealth inequality rising through the 19th century, accelerating somewhat after 1870, reaching a peak in 1910, levelling off, then falling until 1950, levelling off again, then beginning to rise again around 1970/1980.

                http://piketty.pse.ens.fr/files/capital21c/en/pdf/F10.5.pdf

              • Philippe says:

                None of these charts support the claim that fiat money is to blame for inequality or rising inequality.

                You suggested that the creation of the Federal Reserve led to an increase in inequality. According to Piketty’s chart, there was a brief rise in income inequality around 1915, then a more sustained rise in income inequality after 1920, reaching a peak before 1930. There was then a massive fall in income inequality after 1940, reaching a low after 1950, and then an increase beginning after 1980. The Federal Reserve was in existence throughout this time, which means it oversaw periods of both decreased income inequality and periods of increased income inequality.

                The second Piketty chart shows wealth inequality in the US reaching a peak around 1910, just before the creation of the Federal Reserve, and then falling after that. This flatly contradicts your suggestion that the Federal Reserve was responsible for increased inequality.

              • Philippe says:

                the above comment follows on from a previous comment which contains links to two charts. That comment is awaiting moderation so hasn’t appeared yet.

              • Bob Roddis says:

                There are myriad ways that the elite gets favors from the government as the direct result of “progressive” interpretations of the constitution which now allow for exceptions to the basic protections for private property and freedom of contract all in the name of solving the problems caused by said interventions while blaming it on the NAP.

                Kolko’s “Triumph of Conservatism” is now $1.31 plus shipping. There is no excuse for not knowing its lessons.

                http://tinyurl.com/kftvux5

                Blaming anything on “capitalism” is lazy and dishonest.

              • Bob Roddis says:

                Further, you can now buy the Kindle edition of “In Restraint of Trade: The Business Campaign against Competition, 1918-1938” by
                Butler Shaffer  for $2.99. There is no excuse for not knowing this stuff.

                http://tinyurl.com/mjzvqjr

              • Philippe says:

                ok, but you’re changing the subject.

                I didn’t blame “capitalism”, I debunked your specific claims regarding fiat money and inequality.

                You have implicitly accepted that your claims have been debunked, as you have responded to my comments by changing the subject.

                Also, I do not define ‘capitalism’ as an imaginary Rothbardian society in which there is no ‘state’.

      • Cosmo Kramer says:

        LK, since correlation implies causation, I am glad you readily admit that minimum wage laws hurt those it is intended to help.

        In 1938 the average hourly wage in manufacturing
        industries was 62 cents an hour. In January, 1968, it was
        $2.64 an hour. But our legislators, not content with this
        general rise in wages due to more and better tools and
        natural economic forces, have decided to keep raising
        the legal minimum wage even faster than the fast-rising
        market average. Thus the statutory minimum was only
        29 per cent of average hourly earnings in manufacturing
        just before the increase in 1950, but 40 per cent
        before the increase of the minimum in 1956,43 per cent
        before the increase in 1961, 47 per cent before the increase
        in 1963, and 54 per cent before the increase in
        1968. The consequence of this is that the legal minimum
        wage was pushed up 114 per cent between early 1956
        and 1968, though average hourly earnings in manufacturing
        rose only 55 per cent. Meanwhile, the Federal
        minimum wage has become effective over a far greater
        range.
        The net result of all this has been to force up the wage
        rates of unskilled labor much more than those of skilled
        labor. A result of this, in turn, has been that though an
        increasing shortage has developed in skilled labor, the
        proportion of unemployed among the unskilled, among
        teen-agers, females and non-whites has been growing.
        The outstanding victim has been the Negro, and particularly
        the Negro teen-ager. In 1952, the unemployment
        rate among white teen-agers and non-white
        teen-agers was the same—9 per cent. But year by year,
        as the minimum wage has been jacked higher and
        higher, a disparity has grown and increased. In February of 1968, the unemployment rate among white teenagers
        was 11.6 per cent, but among non-white teenagers
        it had soared to 26.6 per cent.

        http://mises.org/books/manwelfarestate.pdf

  7. Andrew' says:

    I wonder if the 1% are pissed off at their 1%…the 0.01%.

  8. Ken P says:

    I bet a lot more people would fall into the “one pct at some point in their life” category if their 401k growth was included in their income total when it was earned instead of being deferred. When people are in their late 50s there is a lot of deferred income being earned.

  9. Josh says:

    Independent of his personal situation, Krugman is quite right to draw a distinction between the top 1% and the smaller subset of individuals accounting for the entirety of gains in the US.

    Excluding the top tenth of 1% (0.1%), in fact the 1% has been flat in terms of share of US Wealth over time. It also consists of a broad group of 1.5 million households. In contrast, 0.01% hundredth is a fairly uniform group of 15 thousand who share of wealth has nearly tripled in the last 20 years while the 99.9% of households have been flat or down.

    See:
    http://www.theatlantic.com/business/archive/2014/03/how-you-i-and-everyone-got-the-top-1-percent-all-wrong/359862/

    http://www.nytimes.com/packages/html/newsgraphics/2012/0115-one-percent-occupations/

    http://www.indiana.edu/~spea/faculty/pdf/heim_JobsIncomeGrowthTopEarners.pdf (see table Percentage of primary taxpayers in top 0.1 percent of the distribution of income)

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