Krugman: Where's Your Evidence?

House Republicans want much deeper cuts to food stamps.

Two big main distributional policies are:

1) Dollar. A stronger dollar makes foreign workers cheaper relative to US, putting more pressure on wages. Many high income workers are insulated, e.g., doctors by licensing laws. Rs are for a strong dollar and against Fed actions that might weaken it.

2) Too big to fail and weak bank regulation generally. This redistributes from all to the financial sector workers and owners, who tend to be higher on the income scale. Rs support.

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It’s that old Rawlsian idea that all property in a society is communally owned; we just let people keep portions of it for themselves as an incentive to get them to do what we want them to do, which is to work hard and be productive, because that benefits the poor or something. I suppose this is an improvement over Marx, with the idea that all property is communally owned…end of story. But that’s not exactly setting the bar very high.

To be fair, I don’t eat at McDonald’s because it’s healthy. I eat there because it’s yummy. Consumers of Krugman don’t read him for unbiased views on economic matters. They read him to reinforce their priors.

It might be time to stop referring to him as an economist.

@Floccina,

Redistribution by Government is by definition a form of corruption. Given that, what difference would it make if its hidden or made explicit?

You are already on the slope, the only way to not slide down is to get off!

Short answer: Krugman is trolling.

Democratic partisans (and Krugman obviously is one) say things like that because they know it annoys Republicans. They know perfectly well that Republicans aren’t advocating any literal redistribution of wealth, they’re just trying to bait the Republicans into a debate where they get to frame the terms. If you attempted to engage Krugman on this issue he would immediately shift to “all changes in policy redistribute wealth, doing nothing is a change in policy, which will cause rich people to get rich”. And then you’ll end up having a semantic debate about whether deregulation counts as a “policy”.
The point of which is to portray all possible policies on a playing field in which the only morally important distinction is the distribution of wealth that results.

Paul Krugman is Ellsworth Toohey.

David Henderson,

Thanks for the great post; however you left out what is perhaps the most important point of all, voluntary charity.

Voluntary charity is generally redistribution of wealth to people of lesser means (although some donations, like to orchestras, art museums, and universities make that point more murky).

The key difference though is that what Krugman favors is the use of coercive force of government to enact the involuntary redistribution of wealth from people who have done nothing wrong to people who have done nothing to deserve it. Charity is the voluntary distribution of wealth based on one’s own sense sense of conscience or character, not to mention sense of efficiency.

Regarding efficiency of charity (be it private or coerced through government), what percentage of people who donate money of their own free will choose to donate it to the government because they think the government is most efficient at it? Certainly not Warren Buffett, who seems to think he is undertaxed yet is in the process of donating his lifetime savings to the Bill & Melinda Gates Foundation instead of to the government.

@Delphin,
Most immigration restriction seems aimed at keeping out the low skilled. Prima facie that seems like protection for unskilled workers here, which is redistributing down not up. Can Caplan substantiate his claim?
Delphin, unskilled American workers are among the highest-paid people in the world, certainly in the top 20%. Keeping out foreign unskilled workers, many of whom are in the bottom 50%, hurts them and helps the U.S. unskilled workers. Thus, Bryan’s correct claim that immigration restrictions redistribute income up.

Not that I like to come to Krugman’s defense on political issues, but…

The House Republican’s overwhelming support for ag business subsidies on Thursday is pretty clear evidence supporting Krugman’s assertion, while also destroying the myth that the House Republicans care about the deficit.

I do realize that this vote came after Krugman’s claim and Henderson’s post here, but it can hardly be viewed as a surprise.

Krugman is using the status quo as the baseline. If the typical person at the 5th percentile of the income distribution is getting $5000 in welfare payments per year, reducing it to $3000 is “redistributing upwards.”

Re: Jeff J

If you want to try and use business strategy to refute the example, you need to be prepared to factor in business strategies that refute your point.

“If you have 10 sheep and I have one, you can undercut me in wool sales due to your higher volume and run me out of business.”

You could just compete on a different metric, like the resulting quality of sheered wood. If they can bid down the value of crap wool, that won’t affect your quality wool. There’s also (almost) nothing stopping you from looking for the right mix of financing to buy 9 more sheep and thus compete via volume sales.

The only difference between starting with 10 sheep and starting with 1 but financing the remainder is the fact that you don’t have the same absolute level of retained earnings. You have to use some or all of your profits on the 9 sheep to pay your debtors.

But there’s room for arbitrage and profit-making when going this route; you can earn a higher return than your debtors expect and pocket the difference, but similarly you can earn less or nothing. So your return on equity can be higher or lower than the competing sheep-sheerer.

Then there’s the ability to just sell your sheep and buy a share in your competitors 10 sheep sheering corporation; this is just a variation on the prior that removes both the risk of earning less than them and the reward of earning more.

“It is then much easier for you to procure my sheep than it is for me to procure one of yours.”

It’s only easy if their business plan is superior to yours. The competitive advantage from specialization and mass production is often counteracted by intangible risks associated with coordinating and directing the large organization.

And there’s not a whole lot stopping you from immitating their business plan of sales through volume. The only thing really stopping you is the confidence of your financiers in your business plan, but that should stop you because if your business plan sucks you’re just asking for redistribution to subsidize your failure at the cost of those who are competent.

The extra step forces you to be more cautious and more sure of your business plan. This can be considered an advantage as gives you a second pair of heavily invested eyes. This is no middle-manager glancing over the next proposed venture of corporate funds, who only needs to spot the really rotten eggs to protect his income; this is someone who is innately concerned with what you are going to do with their money and who would like to see you succeed with it to your fullest.

It’s only easier for them to “procure one of your sheep” if their return on equity is higher than yours, in which case you simply gain by selling your sheep and buying into their corp. If your return on equity is higher in general, you can ignore debt or volume and just bid more for the sheep and still return a profit, and so even though you start smaller, you can grow at their expense or in conjunction with them if the overall market is growing.

“A third person who advocates for policies that make it easier for you to pursue this business plan *is* advocating redistributing sheep upward.”

Hardly. Even under the fantastical assumption that there’s no way to get around the disparate scope because financiers won’t touch you with a ten foot pole despite the fact that your business plan is amazing and you’re an expert businessman, there is no redistribution occuring. Once you recognize you can’t compete in the long-run you can just liquidate your assets immediately and minimize your losses.

And them having a comparative advantage isn’t redistribution at your expense, it’s called gains from trade and comes at nobodies expense. They’re more efficient and can do more than you for less, and the productivity of the economy as a whole improves at the expense of nobody in the long run.

You just incur some short-term transitional costs associated with finding a new market with some profitmaking opportunities. And you don’t even need to do that; you can just become a financier yourself and invest your equity into another business.

The net result of him coming into the market and threatening to outcompete you is either you accepting the resulting lower rate of return or taking your equity out of the market and sticking it in a new market. You lose nothing if you react fast and he doesn’t have to gain anything at your expense unless you let him.