Brink Lindsey Baits Paul Krugman
Brink Lindsey has written a paper criticizing Paul Krugman’s view that the period from 1950-1970 was a sort of golden era for economic policy, because it involved high economic growth with relatively little inequality. Lindsey instead sees the immediate postwar era as one of lazy cartels, in which firms faced too little in the way of competition or creative destruction to warrant bidding up the price of executive talent.
I’m tempted to joke that we will know that Lindsey has succeeded if Krugman issues a bitter, personal attack on Lindsey. My own thoughts are as follows.In my view, Lindsey only focuses on two of the four causes of inequality that Nick Schulz and I presented. We talk about technology, immigration, winners-take-most markets, and family structure. Lindsey puts a lot of weight on the first two. He alludes to winners-take-most markets in entertainment, but my view is that such markets have emerged in other areas as well–look at Microsoft or Google. Finally, I think that the family structure issue is more than just smaller household sizes. I think that Betsey Stevenson/Justin Wolfers marriages are another big factor. That is, when highly-educated men start looking for wives who are stimulating companions as opposed to kitchen floor-moppers, this reduces cross-class marriages and thereby raises inequality.
The big puzzle here is that of executive pay. Krugman has a simple story–executives will take as much pay as social norms will allow, and until the Reagan era social norms would not allow them to take very much. Lindsey’s story is that a more competitive, dynamic business environment caused executive pay to rise.
Both of these sound to me like just-so stories. Either one may be right (or both–they are not mutually exclusive), but I don’t think we have anything like smoking-gun evidence. My gut instinct actually leans more in the direction of Krugman. I look at the salaries of college presidents, for example, and I see them affected more by norms than by a tough competitive environment.
I think that there are plenty of people, mostly men, who have extreme cravings for status. In academics, this shows up as professional jealousy of all sorts. In politics, it shows up in the insatiable desire to expand authority. And in business, it shows up as a desire for ridiculously high pay. Maybe in a perfect world, these status cravings would be better reined in.
I would side with Krugman in the sense that I think that if norms were changed to reduce the size of executive pay, there would be little or no loss of economic efficiency. But I would not side with Krugman in jumping to the conclusion that we really ought to put a lot of effort into changing norms. Even assuming that executives are paid way above their marginal products, the fact that executives get a large share of the pie does not reduce my share of the pie by enough for me to care.