My Response To Krugman On Inequality

I just submitted this to the San Antonio Express-News.

Paul Krugman worries about rising inequality and thinks that if the American public knew how serious it was they would favor strong government intervention to counteract it ("Income gap so deep, 99% can't see to top," Oct. 1).

I disagree with how serious the problem is and his solutions.

First, we need to have some inequality to give people an incentive to start new businesses and become more productive.

Second, our economy has done well during some periods when inequality rose as measured by a statistic called the "Gini coefficient" or G. If it rises, inequality gets worse.

G rose rapidly from .403 in 1980 to .428 in 1990. Yet the economy boomed and we escaped the sluggishness and stagflation of the 1970s when G rose only .009.

Also, the percentage of the population that was employed rose from 59.2% in 1980 to 62.8 in 1990.

G rose to .462 in 2000 as the economy boomed in the 1990s. The employment rate rose to 64.4%.

So we had a good economy while inequality rose. G rose only .008 from 2000 to 2010 while the employment rate actually fell to 58.5%. We had two recessions also.

Krugman says "chief executives earn something like 300 times as much as ordinary workers." Economist Mark Perry has pointed out that if we look at all CEOs, not just the 350 highest paid, the ratio is only 3.8 to 1.

Krugman supports raising the minimum wage. But the Congressional Budget Office projects that raising the minimum wage to $10.10 would eliminate 500,000 jobs.

Texas only uses the federal minimum wage. Yet since December 2007 Texas has added 1.3 million jobs while all other states combined have 1.23 million fewer jobs.

Krugman also favors higher income tax rates on the rich. Yet in the booming 1980s, the highest marginal tax rate was cut from 70% to 50% in 1981 and then to 28% in 1986.

He likes to poke fun at conservative organizations like the Heritage Foundation saying "you sometimes hear assertions that they aren’t really living in poverty — hey, some of them have Xboxes!"

This is a gross distortion of the issue Heritage raises. In 2005 the percentage of poor households (below the official poverty line) had higher ownership rates for things like air conditioners, refrigerators and dryers than the average household had in 1971.

If we acknowledge this increase in the material standard of living for the poorest households it undercuts the left-wing narrative of the evils of unregulated capitalism.

Krugman worries about the lavish lifestyle of the top one percent. Yet about a bit more than half of those in this group are gone after about ten years.

Mark  Rank, a professor of social welfare at Washington University, found that "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."

William McBride of the Tax Foundation found that "of the Forbes 400 from 1987, 327 people have dropped off the list" and "the number of entrepreneurs on the list rose from 40 percent in 1982 to 69 percent in 2011."

Krugman worries about what would happen if Americans learned the facts. Maybe if they did, they might not support the interventionist and re-distributionist policies that he favors.

Earlier this year Gallup found "that Americans not only overestimated the rise of income inequality over time, but also underestimated average incomes." So it seems like Americans need to learn the opposite of what Krugman says.