DEBATING POLITICS, ECONOMICS AND OTHER TIMELY TOPICS WITH PAUL KRUGMAN OF THE NEW YORK TIMES

FRIDAY, JANUARY 15, 2016

PAUL KRUGMAN

Rejecting Reality,
No Matter What
These days many Americans live
in an alternative political reality, in
which the simplest factual assertions are met with anger and derision.
When I, like many others, noted
that job growth since the Affordable
Care Act went into full effect has
been the fastest since the 1990s
which is simply what data from the
U.S. Bureau of Labor Statistics says
I got a barrage of mail from people
claiming that Im crazy or a liar.
Similarly, but on of course a much
bigger scale, a lot of what Im seeing
in reactions to President Obamas
final State of the Union address
amounts to the assertion that only
an imbecile or a hack could believe
Mr. Obamas talk about the strength
of the United States economy relative to other advanced countries
when thats just a simple fact.
Though to get there, you have to
grade on a curve, one where the average is dragged down by the awful
performance of Europe.
What does our economic record
look like compared with our own
past? Not great, but not too bad
either.
Unemployment in the United
States is more or less back to
precrisis levels, but thats in part
because of falling labor force participation. Whats happening to family
incomes? Unfortunately, the Census Bureau data on those incomes
comes with a long lag, but Sentier
Research now produces much more
timely estimates (here: http://bit.
ly/1RDlzU8). What they say is that

after a severe drop, median real

household income is also roughly
back to its precrisis level.
Thats not a great result; once
upon a time we expected median
income to be markedly higher at the
peak of each business cycle than it
was at the preceding peak. But that
wasnt true under President George
W. Bush, who also more or less only
presided over a return to the previous peak on the eve of the Great
Recession and the Bush-era economy only got there thanks to a disastrous housing bubble. (As an aside:
Median income didnt rise much
under President Reagan either.)
So the Obama macroeconomic
record isnt just one of stabilizing the
economy after a terrifying crisis;
he has also presided over income
growth that, assuming we dont
have another recession this year,
will have been better than his predecessor.
Weve also seen a dramatic reduction in the number of uninsured
Americans. So while income has
been flat, income security has gone
up substantially. Of course, none of
this will make any dent in the conviction of the usual suspects that everything has been a disaster. But really,
Mr. Obama has cause for satisfaction, though not triumph.
When Trivial Things Induce Rage
Josh Marshall, editor of Talking
Points Memo, has come up with a
great term for the standoff happening in Oregon: white privilege performance art. We have people en-

DOUG MILLS FOR THE NEW YORK TIMES

President Obama concludes his final State of the Union address to Congress on Jan. 12 in Washington.
gaging in armed insurrection over
the vast oppression of being asked
to pay a small fee when grazing their
animals on public land. Surely an
important part of the story is the
fact that the perpetrators know that
they wont face the consequences
that would follow if, say, a nonwhite
group pulled a similar stunt.
Something that strikes me, however and which I dont fully under-

READER COMMENTS FROM NYTIMES.COM

The G.O.P. Faces an Uncertain Future

President Obama has been a
decent president overall, and he
should get credit for a number of
substantial accomplishments.
However, his opponents have gone
to great lengths to deny him any successes, regardless of whether these
tactics would negatively impact the
country.
As a result, the Obama era will
likely be remembered as the Republican Partys lowest point. Conservatives followed their gains at the

polls with a dismal performance in

Congress. And the present crop of
Republican presidential candidates
does not augur well for the future of
the party.
SERBAN, NEW YORK

I voted for Mr. Obama twice,

and will almost certainly vote for
the next Democratic presidential
nominee. In fact, I have never voted
for a Republican candidate.
GEORGE, MICHIGAN

The fact that most of Mr.

Obamas accomplishments have
been achieved with an obstinate
Republican Congress in place
makes them even more remarkable.
I shudder to think where the nation would be if we had let American
automakers go bankrupt, attempted
to balance the budget during the
Great Recession and allowed the Affordable Care Act to be repealed.
NAME WITHHELD, NEW JERSEY

stand is that when people like this

turn to angry rhetoric with at least
a hint of violence, the issues in question tend to be remarkably trivial.
There are plenty of real grievances
that could rile up working-class
white Americans, but what really
sets them, or their would-be spokesmen, off are things like the belief
that President Obama is giving debt
relief to Those People (which basi-

cally never happened).

Or remember when the conservative commentator Erick Erickson
engaged in what could be considered
an incitement to violence in 2009:
At what point do the people tell the
politicians to go to hell? Mr. Erickson asked in a piece for RedState.
com. At what point do they get off
the couch, march down to their state
legislators house, pull him outside

and beat him to a bloody pulp for being an idiot?

So what motivated all this rage?
Regulations banning phosphate in
dishwasher detergent, which Mr.
Erickson believed was causing his
dishes to get inadequately cleaned.
There has to be some significance
in the awesome triviality of the
things that induce this anger. But I
dont understand what it is.

If the inferiority of Americas

two-party system isnt obvious,
then we have real problems.
I dont care how Mr. Obama feels
about anything. And I dont care
if hes satisfied with his progress.
What matters is how Americans feel.
I think that very few voters are
simply going to ignore their own
situations, look at the nations macroeconomic data and declare that
the economy is in good shape. People
care about their own economic conditions and those of the people they
know.
Politicians ignore this fact because they and their backers are
busy framing every argument in

terms of how bad the other party

is. Few of them ever stop and think
about how good things could be for
the country as a whole.

medical insurance does not provide

income security.
Insurance simply gives people
access to one of the least affordable
health care systems in the industrialized world.
As much respect as I have for your
work, your continuous praise for the
very weak tea that is Obamacare is
deeply misleading.

DAVE, WISCONSIN

The fact that the number of uninsured Americans has decreased

does not necessarily mean that
people have experienced an
increase in income security, although you seem to believe that
this is the case, Mr. Krugman.
As the filmmaker Michael Moore
demonstrated quite clearly in his
documentary Sicko, and the citizens of Massachusetts affirmed under Romneycare years ago, having

PAUL KRUGMAN

Why Economists Arrived Late to Income Inequality

Im a few days late on Justin Foxs
characteristically lucid column in
Bloomberg about why it took so long
for economists to focus on income
inequality. But as one of the economists who did write about inequality
years ago especially about the
rise of the 1 percent I think Mr.
Fox has missed one important aspect: Its a hard issue to model.
Let me back up a bit. There are,
broadly speaking, two kinds of
income distribution analysis you
might want to conduct. One involves
the factor distribution of income
capital versus labor, and highly
educated versus less educated labor.
Economists never lost sight of this
issue, which is a classic concern
its actually a major theme in David
Ricardos work, and can be modeled in terms of good old marginal
productivity theory. In my original
field of study, trade, debates about
the effects of trade on the education
premium were a major concern all
through the 1990s.
The other analysis involves the
personal distribution of income and
wealth. Why are investment bankers paid so much? Why did the gap
between chief executives and the av-

CARTOONARTS INTERNATIONAL / THE NEW YORK TIMES SYNDICATE

erage worker widen so dramatically

after 1980?
And heres the thing: We really
dont know how to model personal income distribution at best we have
some semiplausible ad hoc stories.
Part of why the economist Thomas
Piketty made such a big splash a
few years ago was that he offered a
sketch of a model of wealth inequality that tied it to broader macroeco-

nomic numbers, which gave all of us

something systematic to talk about.
But Mr. Piketty himself concedes
that the big rise in inequality so far
has come from a surge in the right
tail of earnings, which may have had
something to do with norms, but in
any case isnt well explained by any
model we have right now.
Its worth noting that were not
just talking about a problem involv-

READER COMMENTS FROM NYTIMES.COM

More Money Simply Means More Power

This column consists of the
usual apologies that economists
offer for their professions failure
to account for the political impact
of concentrated wealth. How do
inequalities in personal income produce broader societal inequalities?
Well, economics isnt rocket science:
A review of human history shows
that accumulated wealth translates
to social and political power.
Y., NEW YORK

Could supply and demand partly

explain the rise in wealth inequality?

The post-World War II era saw a

huge increase in the global population, which rapidly increased the
supply of labor around the world.
Later, the expansion of free trade
and technological developments
such as containerization provided
businesses with easy access to this
huge new labor pool.
But if the supply of labor increased
more rapidly than the supply of capital, wouldnt that put strong downward pressure on wages?
Indeed, the real value of wages
in the United States peaked around
1970, which is the same time that

baby boomers started to enter the

job market en masse.
DAVID, CONNECTICUT

The sickening spectacle of a

bankster spending on one meal
what it would cost to feed a poor
child for a year should raise urgent
economic questions.
And its easy to see how rigged the
game is given the huge variations in
incomes these days. Whats worse
is that these astounding differences
are unrelated to peoples diligence,
intelligence or intrinsic worth.
DOUG BROOME, CANADA

ing Anglo-Saxon neoclassical economists. Nobody has a good handle

on personal distribution. Marx, for
example, is all about factor distribution his book is titled Capital,
not The 1 Percent and theres
nothing there that helps make sense
of the past 30 years.
But, you may say, shouldnt you
study important issues even if you
dont have neat models? Well, yes,
but the ability to say something
interesting does affect research
topics, and thats only justified up
to a point. Remember Raymond
Chandlers 1950 essay The Simple
Art of Murder: Other things being
equal, which they never are, a more
powerful theme will provoke a more
powerful performance. Yet some
very dull books have been written
about God, and some very fine ones
about how to make a living and stay
fairly honest.
True, at this point, economists are
doing much more work on personal
income distribution; mainly its
empirical, part of the data revolution
in the field. And thats a good thing.
But they have a better excuse than
you might think for not doing more of
this earlier.

The trouble with the predictive power of economics is that it

ignores the fact that humans are
simply not rational and that we
are generally motivated by fear
and greed.
The deregulation of industries
has recently allowed human greed
to flourish unhindered. But humans
cannot thrive in an environment
where only the greediest survive
while everyone else struggles.
Fixing this problem will require
us to rid our financial systems of corruption and ensure that everyone
not just the megawealthy can
participate in and profit from new
global industries.
If we dont fix it, most of us will
eventually be enslaved by perpetual
debt while the 1 percent becomes the

BILL MICHTOM, OREGON

ONLINE: COMMENTS
Comments have been edited for clarity and
length. For Paul Krugmans latest thoughts
and to join the debate online, visit his blog at
krugman.blogs.nytimes.com.

BACKSTORY

Addressing the Wealth Gap

Since the 1970s, income inequality has increased dramatically in
the United States. The last few decades have ushered in a doubling
of income for the nations wealthiest 1 percent of earners, while the
broad majority of Americans have
seen their earnings decline in real
terms.
Throughout this period, economists have often been criticized for
failing to adequately engage with
the issue of inequality. The topic
had largely fallen out of favor in the
1980s and 1990s, when the incomes
of the rich and the rest of society
were rapidly diverging.
But in the mid-2000s, data compiled by the economists Thomas Piketty and Emmanuel Saez
brought the scope of the problem
into clearer view. While their papers were widely circulated, many
analysts credit the blockbuster success in 2014 of Mr. Pikettys book
on inequality, Capital in the Twenty-First Century, as a tipping point
for economics.
According to a report in The New

.01 percent.
If a scenario like this plays out,
revolutions and wars will not be too
far off.
ALANNA, CANADA

Enough about economics and

economic theories!
Our political system and cultural
values are to blame for the wide gap
in incomes. Simply put, our society
favors certain professions and activities over others: bankers over
teachers, manufacturing over farming, and sports and entertainment
over everything else.
Implementing new laws and tax
codes will be ineffective unless we
also implement a new mentality.
Or maybe a new morality?
J., FRANCE

York Times, the annual meeting

of the American Economic Association earlier this year, which included 13,000 attendees, featured a
heavy focus on inequality. Theres
a growing consensus among economists of all ideological stripes
that inequality is growing in the
United States and abroad even
if the usual political fault lines appear when the discussion turns to
the consequences of the trend and
whether new public policies are
needed to address it, wrote Nelson D. Schwartz, a Times reporter,
on Jan. 3.
In an interview after the conference, Branko Milanovic, an economist at New York University and
an expert on inequality, told the
BBC that if there is no sufficient
middle class and if the poor really
are very far from the rich, then you
really cannot speak of a single society. We could end up with a kind
of a global plutocracy. ... We may be
really going back to the situation
that existed before the Industrial
Revolution.

Paul Krugman
joined The New
York Times in 1999
as a columnist on
the Op-Ed page
and continues
as a professor of
economics and
international
affairs at Princeton
University. He was awarded the
Nobel in economic science in 2008.
Mr. Krugman is the author or editor
of 21 books and more than 200
papers in professional journals and
edited volumes. His latest book is
End This Depression Now!