Krugman Equalitarian
By Alec Rawls © 1997/1998 (2000 words) Published in The Stanford Review 11/11/97

A theme of of mine is how the equalitarian mistake (treating equality as an end in itself) inevitably induces a domino effect of error which requires equalitarians (so long as they remain equalitarians) to become shameless liars and twisters of logic, twisting argumentation as hard as they can to favor their preconcieved conclusions, instead of following evidence. Briefly, equality treated as an end in itself is just envy. Where moral reason calls for a full accounting of value, equalitarianism discounts consequences for those who have more. This failure to think straight about ends leads in turn to failures to think straight about means. See "Libertarianism, Equalitarianism and Non-Ideal Moral Theory" 10/14/97.

While equalitarianism is rampant in public life and in the left leaning parts of academia, I have generally found by own field, Economics, to be pretty much free of this infection, at least at the academic level. Newspaper editorials are full of half-wit economic analyses that take some economic principle and use it out of context to claim the opposite of what a full analysis implies, but academic economics is very methodical and rigorous. It is careful to account for all relevant relationships and not to claim more than can properly be asserted.

Now lo and behold, ex-Stanford Economics Professor Paul Krugman (who left for MIT last year), writing in the current issue of The New Republic ("Superiority Complex", 11/3/97) has served up the hope diamond of nit-wit analyses -- a whole contatention of blatant error -- all laid out explicitly in the name of equality! In the guise of accounting for the current combination of low unemployment and low inflation, Krugman flunks Econ. 52 three separate times (do you know how hard it is to get an F?) just so he can concoct an argument for socialist government as a way of combatting inequality. Apparently he has judged that he can get away with this on the public opinion circuit where the overwhelmingly equalitarian media will welcome and even lionize a so-called top economist making the case for big government.

We can't let him get away with it. This is a challenge to the integrity of academic economics. If one who has been promoted to the highest rank from within betrays, through the basest pandering, what every economist understands, he must be exposed to the world for what he is: an equalitarian fraud, embracing envy over truth as all equalitarians ultimately must and do. Readers are encouraged to pick up a copy of TNR and verify the following indictment.

Theory says that low unemployment should cause wages to be bid up which should cause inflation. Increased productivity could alter this relationship (higher priced labor, but less of it, would keep labor costs constant) but Krugman dismisses this explanation by asking why, if our labor is so productive, we are still running a $100 billion trade deficit.

The answer, as any intermediate macro-economics student knows, is because our government consistently runs even larger fiscal deficits. Since Americans don't save, largely because of the socialization of retirement through Social Security, the government has to borrow abroad (i.e. sell I.O.U.'s, creating a capital account surplus) which forces the exchange rate up (making our goods more expensive abroad and foreign goods cheaper here) until the trade surplus balances the capital account surplus.

Krugman knows this. He is is a trade economist! Yet he is in the process of building an argument for the very safety net programs that both incurr government spending and undermine savings. Thus of course (to an equalitarian's way of thinking) he can't mention that such policies are the true cause of our huge trade deficits, and so, shamelessly, he simply ignores what he knows to be the true engine of trade deficits and asserts what he knows to be false (that high trade deficits are inconsistent with high productivity).

Krugman next dismisses the contention that productivity statistics are systematically low by noting that this would imply that inflation is systematically overstated, which would increase the magnitude of the initial conundrum (the coincidence of low unemployment and low inflation) and hence cannot explain it. But economists (led by Stanford Professor Michael Boskin) are in virtually universal agreement that inflation has been badly overestimated for the last twenty years, implying that real productivity has been similarly underestimated. Krugman's position is crazy. He thinks that evidence should be ignored if it makes unsolved problems appear harder to solve!

For those who prefer to follow truth and evidence, the solution to the conundrum of low inflation and low unemployment is around the very next bend. Overestimation of inflation implies, not just an underestimation of productivity, but also an underestimation of real wages. (Real wages are just wages divided by prices. If prices have not gone up as much as was thought, the quotient, real wages, will be higher.) Thus there has been a substantial increase in real wages coeval with the low unemployment of recent years, as theory predicts. Conundrum solved.

Every economist is trained to think in real terms. How is it even possible for a professional economst to hypothesize a lower rate of inflation and try to square it with wage behavior without considering its effects on real wages? It is an astounding glibness, to stop analyzing as soon as one arrives at a point that is useful to the conclusions one is arguing for (a way to dismiss the high productivity/low inflation hypothesis) and not notice that the same analysis, carried one second further, solves the problem completely.

The problem for Krugman is that a correct analysis vitiates what he wants to claim: that wages have not gone up even in good times, proving that our market system is an engine of inequality. Accordingly, he manages to keep himself from even seeing what you'd have to flunk an Econ. 1 student for not seeing! It is the epitome of arguing for pre-concieved conclusions rather than following evidence.

The fact is, there really is not much of a conundrum in the first place. The combinations of high inflation and high unemployment seen in the 70's and early 80's were the result of oil price shocks. In the subsequent era of falling real oil prices, it is not surprising at all to have low inflation and low unemployment at the same time. With oil prices edging back up, look for the next round of statistics to show a higher combination of inflation and unemployment.

Fixed on capitalism as an engine of inequality, Krugman offers his own thesis for wages not going up (though in fact they have). He suggests that "workers have been astonishingly cautious about demanding better pay." There is only one problem with this theory (besides its being supurflous). To the extent that labor markets are competitive, wage increases are not driven by workers "demanding better pay," but by employers bidding up wages as the pool of unemployed workers shrinks and employers have to start luring personnel away from each other. In real terms, this is just what has been happening. More generally, competition for quality employees is always at work and wages are determined in what are fairly competitive markets for labor. The picture of poor browbeaten Olivers afraid to ask "more?" fits the theme of inequality nicely. It just does not fit economic understanding.

Krugman clearly laments what he has mis-diagnosed as the timidity of American workers. He blames it on the weakness of American unions (an economist in favor of increased monopoly power and reduced competition!) and on the dearth of social support programs which embolden people in "other advanced countries" to be less concerned about supporting themselves. He calls our system of competition and individual responsibility "harsh and brutal" and, throwing in the kitchen sink, charges that it has not resulted in the boom of investment that tax cutters and free marketeers promised.

No mystery there. Government spending was not cut at the same time as taxes, creating the fiscal deficits that are eating up savings. Also left in place were the social programs that remove incentives to save in the first place. Savings is the supply side of the investment funds market, making increased deficit spending and big government the obvious culprits for any ensuing deficiency of investment.

In his trade deficit analysis Krugman simpy ignored the evil consequences of big government. Here he is blaming them on markets! The most committed communist party hack could not be more outrageous. But Krugman is just getting started. This is the foundation on which he calls for a whole further march towards government largesse. Nothing deters him. He acknowledges that socialized medicine for poor people creates perverse incentives, keeping them from trying to do better. His solution? Socialized medicine for everybody! He acknowledges the dismal effects of European style welfare states, then advocates a European style welfare state, urging that we spend several more percentage points of GDP on our "less fortunate" citizens.

Krugman's motivating concern is inequality. This shows up, inevitably, as a strong bias against those who have more. Tax breaks for poor people are highly lauded both for increasing the incomes of poor people and for increasing the incentives to work. Tax cuts for the more productive members of society are utterly scorned. Krugman asserts that "there is no reason to believe that the tax cuts of the '80s did anything positive for the economy." Letting any besides the poor keep more of their own earnings is not a "positive" in Krugman's view. The lives of those who have more are simply expendable in his mind, fodder to assuage the circumstances of their supposedly more sympathetic, "less fortunate" (actually, "less productive", typically of everything, from parenting to citizenship to economic output), bretheren.

Krugman owns up to his equalitarian motivation proudly, imagining it to be an unassailable standard. Under its aegis, he apparently believes that his own insouciant perversions of economic understanding will be above recrimination. After all, who could contest arguments made in the name of equality without revealing himself to be an enemy of decent feeling? And if Krugman's heart is in the right place, musn't he be on the side of right?

But Krugman's heart is in the wrong place. Equality as an end is equivilant to envy. It is evil. The righteous feeling that the equalitarian interprets as validation is only envy's self-validation: its own love of hatred. That is what allows the equalitarian to spurn truth and evidence. Any functioning moral sense feels horror at the destruction one is prone to wreak if one puts out one's eyes by following untruth. Only a heart devoted to envy can embrace the blind destructiveness of untruth as a good.

Krugman's willful economic incompetence is the outer manifestation of a complete inner moral transposition of good and evil. Equalitarianism has caught him in its cascade of error as it has caught so many before him, both the great evil men of history -- Lenin, Stalin, Castro, Che, Mao, Pol Pot -- and the millions of smaller men and women who have, by placing equality over truth, let envy become their sense of right.

The correct moral standard is mutuality, valuing everything there is to value, regardless of who has more and who has less. It distinguishes inequality that results when some people are not properly compensated for their actual productivity (bad) from inequality that is caused by people having different levels of productivity (good, because it results from people being properly paid for their productivity, which is both good in itself and gives people incentive to be productive). Good inequality satisfies desert and leads to efficiency. Institutions and policies must complement efficiency by answering claims of need and this will moderate some inequalities, but inequality per se is not a pejorative.

When people can make claims of need the proper way to meet those claims is by billing all aid to the recipient's account, to be paid back with full market interest according to ability to pay over the rest of the recipient's life. Such a scheme gives aid while maintaining incentives not to take aid except in true case of need. It is redistributive, since not all aid will be repaid, and the redistributive effect can be increased as much as desired by varying the "ability to pay" formula. Whatever aid is given, this is the way to give it.

Equalitarians will find ways to resist this understanding for as long as they live, but when a supposed top economist like Krugman promotes his big government agenda by flunking the most basic economic analyses he must be called to account.

(Alec Rawls is Opinions Editor of The Stanford Review)


Next article in the Non-ideal Theory volume of Moral Science: Erlich Equalitarian

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