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Krugman writes: "For more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth."

Paul Krugman. (photo: NYT)
Paul Krugman. (photo: NYT)


Inequality Is a Drag

By Paul Krugman, The New York Times

08 August 14

 

or more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth.

Liberals have generally viewed this as a trade-off worth making, arguing that it’s worth accepting some price in the form of lower G.D.P. to help fellow citizens in need. Conservatives, on the other hand, have advocated trickle-down economics, insisting that the best policy is to cut taxes on the rich, slash aid to the poor and count on a rising tide to raise all boats.

But there’s now growing evidence for a new view — namely, that the whole premise of this debate is wrong, that there isn’t actually any trade-off between equity and inefficiency. Why? It’s true that market economies need a certain amount of inequality to function. But American inequality has become so extreme that it’s inflicting a lot of economic damage. And this, in turn, implies that redistribution — that is, taxing the rich and helping the poor — may well raise, not lower, the economy’s growth rate.

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+34 # tswhiskers 2014-08-08 14:53
Mr. Krugman still thinks the Reps. are reasonable people; or perhaps he's referring to fellow economists. But it's still the case that Reps. WILL NOT change their economic biases in favor of corporations and the wealthy, even apparently, to secure their future survival; they have made that clear for years in the face of economic gains made in states with higher wages and better standards of living, e.g. MN and Milwaukee, WS. They have clung and will continue to cling to their trickle-down economic theories regardless of any proof to the contrary, because their
"base" is doing very well, thank you, so why fix what ain't broke? I keep thinking that census data is so much against them that they will, in the end, have to broaden their economic and racist policies, but I haven't seen any signs that Reps. are facing squarely up to reality. MSNBC hosts talk occasionally about the "death" of the party, but stubborn is as stubborn does. This year's election and the 2016 may tell the tale. These are d**** interesting times we're living in.
 
 
+19 # RicKelis 2014-08-08 15:47
FYI- abstract of the Krugman article "Inequality Is a Drag: A New Case For Trickle-Up Economics " Center Cut:
Paul Krugman: "[Is redistribution] the liberal equivalent of the right-wing fantasy that cutting taxes on the rich actually increases revenue? [Well] there is solid evidence, from the International Monetary Fund, e.g., that high inequality is a drag on growth and that redistribution can be good for the economy —[and] Standard & Poor’s put out a report supporting [that] view.
What S.& P.’s imprimatur shows is just how mainstream the new view of inequality has become. [So] there is no reason to believe that comforting the comfortable and afflicting the afflicted is good for growth, and good reason to believe the opposite.
The international evidence on inequality, redistribution, and growth [shows] that lower levels of inequality are associated with faster growth [and that] income redistribution [in] advanced countries is “robustly associated with higher and more durable growth.” There’s no evidence that making the rich richer enriches the nation as a whole, but there’s strong evidence of benefits from making the poor less poor."
 
 
+10 # RicKelis 2014-08-08 15:49
FYI- abstract of the Krugman ""Inequality Is a Drag: A New Case For Trickle-Up Economics" article, Pt.1:
Paul Krugman: "For more than three decades, almost everyone in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth.
Liberals have generally argued that it’s worth accepting some price in the form of lower G.D.P. to help fellow citizens. Conservatives have advocated trickle-down economics: cut taxes on the rich, slash aid to the poor and count on a rising tide to raise all boats.
But there’s now growing evidence that the whole premise of this debate is wrong, that there isn’t actually any trade-off between equity and inefficiency. Market economies need a certain amount of inequality to function, but American inequality has become so extreme that it’s inflicting a lot of economic damage. [So] redistribution — i.e., taxing the rich and helping the poor — may well raise the economy’s growth rate."
"But doesn’t taxing the rich and helping the poor reduce the incentive to make money? Well, yes, but incentives aren’t the only thing -- opportunity is also crucial. And extreme inequality deprives many people of the opportunity to fulfill their potential.
 
 
+16 # RicKelis 2014-08-08 15:50
FYI- abstract of the Krugman "Inequality Is a Drag: A New Case For Trickle-Up Economics " article, Pt.2:
"Talented children in low-income American families [don't] have the same chance to make use of their talent, get the right education to pursue the right career path as those born higher up the ladder. Moreover, extreme inequality means a waste of human resources.
And government programs that reduce inequality can make the nation as a whole richer, by reducing that waste.
[Take] food stamps. Making food stamps available somewhat reduces work effort, but Americans who had access to food stamps [as] children grew up to be healthier and more productive, [and] made a bigger economic contribution. The purpose of the program was to reduce misery, but it was also good for American economic growth.
The same thing will end up being true of Obamacare. Subsidized insurance will induce some people to reduce the number of hours they work, but it will also mean higher productivity [when they're] getting the health care they need, making better use of their skills because they can change jobs without the fear of losing coverage. Health reform will probably make us richer as well as more secure.
The new view of inequality [should] change our political debate. Being nice to the wealthy and cruel to the poor is not, it turns out, the key to economic growth. On the contrary, making our economy fairer would also make it richer. Goodbye, trickle-down; hello, trickle-up."
 
 
+9 # Texas Aggie 2014-08-08 19:54
Thanks, Ric. I appreciate not having to use one of my ten chances to access the NYT.
 
 
+2 # RicKelis 2014-08-10 11:37
Tex - you are certainly welcome. Actually, you get the most out from reading the original because there's more details, more backup facts, and more of Krugman's style, which is a bit more measured than the edited version. (it's cut down to be about 60% of the original article) But, in general, the abstract is a viable source, free and a quick read.
 
 
+41 # Gnome de Pluehm 2014-08-08 17:12
There are no patriots in the 1%; if a miracle turns on up, I'm certain there are less than none in the .01%. They would all be happy to see the USA become a banana republic provided they became the owners.
 
 
+8 # reiverpacific 2014-08-09 10:10
Quoting Gnome de Pluehm:
There are no patriots in the 1%; if a miracle turns on up, I'm certain there are less than none in the .01%. They would all be happy to see the USA become a banana republic provided they became the owners.


I'd mostly agree with you except that the only Billionaire I ever knew was a true patriot -almost obsessively so. Flew with my wife's dad's squadron off the carriers in the Pacific theater in WW11 and a short term in Korea, then made his fortune by being the visionary that first brokered cable TV (and was disappointed at how it turned out in many ways, as he meant it to be used for sports and education), was a determinedly anonymous philanthropist who told me that "It was a challenge and great fun making all that money from an idea but it's been more fun giving it away".
Ergo, I'd absolutely agree with you but for a few exceptions like this guy -which showed that we must be careful when applying absolutes-, as most of that crowd got it the old-fashioned way -by inheriting it and wouldn't part with a red cent if there wasn't a tax break or hidden profit in it for them and who don't give a damn about the general welfare of the country or the planet.
Look at even your own government made up of and enriched by the lobbyists of the wealthy who does business with some of the most feudalist, repressive regimes on the globe whilst concurrently demonizing "selected" others.
 
 
+2 # WestWinds 2014-08-09 17:22
#ReiverPacific: Quote:
"I'd mostly agree with you except that the only Billionaire I ever knew was a true patriot -almost obsessively so. Flew ... in Korea, then made his fortune by being the visionary that ... was a determinedly anonymous philanthropist who told me that "It was a challenge and great fun making all that money from an idea but it's been more fun giving it away"."
--- But he came into his billions with a set of values that precipitated his philanthropy. I went to school with kids who had last names like Sears, Danforth and Peabody, and let me tell you, they drum any philanthropic impulse out of their children from the cradle; they have no use for anything but money; I call it sociopathy. I didn't belong to this crowd, so they didn't talk with me or include me in any of their recess gatherings and I was never invited over to their house, either. I can still remember how they looked me up and down from the safety of their recess clutch as if I were a head of cattle and beneath contempt; this was the sixth grade. My people were only educated; not even Nuevo Riche or Cafe Society. I'm talking Boston Brahmins. So, your one billionaire a cadre of billionaires does not make.
 
 
+2 # reiverpacific 2014-08-09 20:37
Quoting WestWinds:
#ReiverPacific: Quote:
"I'd mostly agree with you except that the only Billionaire I ever knew was a true patriot -almost obsessively so. Flew ... in Korea, then made his fortune by being the visionary that ... was a determinedly anonymous philanthropist who told me that "It was a challenge and great fun making all that money from an idea but it's been more fun giving it away"."


--- But he came into his billions with a set of values that precipitated his philanthropy. I went to school with kids who had last names like Sears, Danforth and Peabody, and let me tell you, they drum any philanthropic impulse out of their children from the cradle; they have no use for anything but money; I call it sociopathy. I didn't belong to this crowd, so they didn't talk with me or include me in any of their recess gatherings and I was never invited over to their house, either. I can still remember how they looked me up and down from the safety of their recess clutch as if I were a head of cattle and beneath contempt; this was the sixth grade. My people were only educated; not even Nuevo Riche or Cafe Society. I'm talking Boston Brahmins. So, your one billionaire a cadre of billionaires does not make.
I never said it he did (you must ha' gone to a pretty fancy school!). Read my li'l billet-doux again and you'll see that I'm mostly agreeing with you're summation but we must make allowances.
A friend is a friend, when proven to be so.
 
 
+3 # WestWinds 2014-08-10 08:45
#ReiverPacific: Quote:
"I never said it he did (you must ha' gone to a pretty fancy school!). Read my li'l billet-doux again and you'll see that I'm mostly agreeing with you're summation but we must make allowances.
A friend is a friend, when proven to be so.
--- Your friend is the exception that makes the rule. But to underestimate who and what these people are is a grave mistake. Underneath all of the cool, aloof charm is pure vicious. To see them as somehow one of us is to invite disaster; to wit: the Republican Party base that votes against everyone's best interests. I'm not saying don't enjoy your friend; too bad they weren't all like him; I'm just cautioning against sleeping with tigers.

--- As for my school... back then such opportunities were available to average families; such schools were affordable if you wanted your kids exposed to highly effective teachers and education was a priority with your parents. But the rich have sent all of the prices skyward to make sure those doors of opportunity are closed to all but themselves. Yet another marker of their nasty, myopic, ego-centric, greedy, sociopathic personalities.
 
 
+7 # Gnome de Pluehm 2014-08-08 17:14
-oops! ...turns one up...
 
 
+14 # Inspired Citizen 2014-08-08 18:24
This is simple demand-side economics. There is not enough effective demand in the economy because many folks are still not working, and those who are have seen their incomes compared to inflation flat for far too long.

Key is the fact that this is not about morals. Fair or not, greater demand needs to be created. Food stamps, minimum wage as a living wage (helping folks to get off public assistance, lowering taxes), a sharp increase in the top marginal tax rates.

The trick is to shift that surplus, investment money from private majority to public majority spending as a percentage of earned income from any source, depending on whether we are in a demand side recession or a supply side squeeze.

We have to economically fine-tune macro-economics while we slowly transition to a sustainable, post-fossil fuel, regionally and locally-based trading economy. The revenues collected in this demand-side slump could pay for roads covered in solar cells instead of blacktop (technology is out of development and ready to deploy). We need a new hi-way system to power American. Roads and parking lots can save us. Vehicles can run on hydrogen.

Problem of effective demand and climate change nearly solved. We also have to extract the carbon that's been released. That technology is also under development. If system Earth is to sustain 10 billion people, we have to reverse the "damage" we've done.

Implementation of this idea (praxis) would require President Sanders in 2017.
 
 
+4 # Inspired Citizen 2014-08-08 18:28
Not likely. that was supposed to be "to power America."
 
 
+8 # Jim Young 2014-08-08 21:00
Quoting Inspired Citizen:
...The trick is to shift that surplus, investment money from private majority to public majority spending as a percentage of earned income from any source, depending on whether we are in a demand side recession or a supply side squeeze...


A favorite indicator for a retired CPA friend (that worked for the California Board of Equalization on tax policy) told me the low tax rates for the wealthy didn't matter "IF" the Velocity of Money was high enough. So I asked him what the current Velocity of Money was. Since he was long ago retired, he had to look it up and get back to me the next week. When I next saw him, he excitedly told me it was even worse than the worst part of the Great Depression,and the worst it has been since they started measuring it.

There is no legitimate excuse for excessively low tax rates without adequate Velocity of Money (from a healthy economy) to support such "NON-TEMPORARY" lowering.
 
 
+10 # Inspired Citizen 2014-08-09 04:36
Unfortunately, no matter what the argument, how sound the reasoning, reactionaries like Club for Growth and Grover Norquist have choke holds on Republicans over tax increases, esp. on the wealthy.
 
 
+2 # Jim Young 2014-08-09 21:12
Quoting Inspired Citizen:
Unfortunately, no matter what the argument, how sound the reasoning, reactionaries like Club for Growth and Grover Norquist have choke holds on Republicans over tax increases, esp. on the wealthy.


I have trouble deciding whether Grover Norquist (ATR or Americans for Tax Reform) or Dick Cheney is public enemy number one, for the damage they have done to our country and where we should be by this time in our history.

We stayed across the street from the modest looking headquarters of ATR, but didn't see any of the usual suspects going in and out. They do their snake oil focus groups with only the ones that mutually benefit their favored groups (well out of the limelight).

P.S. I wouldn't call them reactionary, though. They very carefully and deliberately ratchet every step toward their constant gaining advantage (making the rest of us try to react effectively).
 
 
-1 # WestWinds 2014-08-09 17:47
Well the "praxis" of lessening fossil fuels isn't happening. I read just the other day that BHO has signed off on a mountain of new drilling leases for oil and natural gases from AK to CA to the Gulf to the Atlantic coast of FL to MA. I guess they want to be firmly entrenched so if Warren or Sanders gets in these drilling rigs will have to be grandfathered into any prohibition on fossil fuels.

And another article I read said that this government has uncovered a $619B dollar deficit of money that has "gone missing". I find it REALLY convenient that BHO is in office for six years and not a peep about missing money, but as he prepares to exit stage Right, it slips out that $619Billion USD is missing. And we wonder why these people are getting rich allegedly representing us.
 
 
0 # reiverpacific 2014-08-09 20:43
@ "Inspired citizen".
Nice ideas but there is a better solution (in my 'umble opinion) -High-speed and solar-powered branch lines to smaller towns and to Hell with cars except for personal shuttles.
Europe, China and Japan just to name a few, have never really abandoned rail and are even building them anew.
Trains are sociable things too. -Have a drink, a snack or a meal, meet a few people, let the qualified drivers take care of the stressful part.
Just sayin' (I come from a long-time Scottish train-driver, or as you call 'em "Engineer" family).
 
 
+10 # wilkinsb 2014-08-08 22:30
Tommy Douglas known as the "Father" of Canadian medicare.
Said having lived in Rural Saskatchewan he knew exactly how "trickle down" worked. Trickle Down was what the horses left behind for the sparrows to eat from.
 
 
+6 # Adoregon 2014-08-09 11:50
"For more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth."

Almost everyone who matters in American politics IS already rich or hopes to be in the near future. They're happy to keep the system rigged.
 
 
+2 # WestWinds 2014-08-09 17:30
Quoting Adoregon:
"For more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth."

Almost everyone who matters in American politics IS already rich or hopes to be in the near future. They're happy to keep the system rigged.


--- True. And the Clintons and the Obamas are prime examples of this. Both of these families came into politics with the lint in their pockets and are now multi-millionai res. This is why we have to get the money incentive out of politics and get people in who are dedicated to people principles and not profits.
 
 
+6 # Vardoz 2014-08-09 12:44
Corporations have known this for a long time. Politicians have been paid off by the rich, the banks, feds, and special interests to make sure they get rich at our expense. They write the tax laws to favor them. Vote in local reps to rob us. They don't want to pay high taxes while the average person is forced to pay more and 1 in 4 pay no tax at all. Out sourcing for cheap labor is preferred by corporations so they can make more money & trillions have been stashed off shore. So everything has been arranged benefit the 1% at our expense. There is no interest in creating jobs, paying people a living wage, making college affordable improving infrastructure, securing safety nets, services, schools, you name it. - Its all about more for them and less for us. There is no interest in the health of the economy as a whole. But there is a huge ripple effect when more and more people don't have money to spend or to even live. We have been neglected and abused so that the rich can stay rich and trillions can go to the military and corporations.
 
 
+2 # WestWinds 2014-08-09 17:33
It's called feudalism.
 
 
+2 # reiverpacific 2014-08-10 15:04
Quoting WestWinds:
#ReiverPacific: Quote:
"I never said it he did (you must ha' gone to a pretty fancy school!). Read my li'l billet-doux again and you'll see that I'm mostly agreeing with you're summation but we must make allowances.
A friend is a friend, when proven to be so.


--- Your friend is the exception that makes the rule. But to underestimate who and what these people are is a grave mistake. Underneath all of the cool, aloof charm is pure vicious. To see them as somehow one of us is to invite disaster; to wit: the Republican Party base that votes against everyone's best interests. I'm not saying don't enjoy your friend; too bad they weren't all like him; I'm just cautioning against sleeping with tigers.

--- As for my school... back then such opportunities were available to average families; such schools were affordable if you wanted your kids exposed to highly effective teachers and education was a priority with your parents. But the rich have sent all of the prices skyward to make sure those doors of opportunity are closed to all but themselves. Yet another marker of their nasty, myopic, ego-centric, greedy, sociopathic personalities.
My friend is gone now sadly; he gave my wife and I some good advice, business and all.
Also, he disdained these rich pricks who meet in the "Bohemian Grove" every July and very much trod his own political path as a fair minded "Liberal Republican" .
But I agree with you on most counts.
 

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