Comments for Krugman versus Stiglitz on Inequality and Economic Growth at http://www.cepr.net , comment 1 to 29 out of 20 comments http://www.cepr.net Sat, 25 May 2013 03:52:22 +0100 FeedCreator 1.7.3 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21492 Steve Waldman take on Krugman here: [url]http://www.interfluidity.com/v2/3830.html[/url] Quite frankly I don't see what if anything remains of Krugman's argument. - Eric L Thu, 24 Jan 2013 17:37:31 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21472 I think Krugman made a big mistake by not considering the effect of inequality on economic growth. I think the economic plight of the black community is a perfect example that has been extrapolated to the economy at large while their unemployment has increased to 14%. I understand there is a lack of demand but to say that the lack of that demand is not due to plutocratic practices is irresponsible. We don't have the stimulus that he keeps harping about precisely because of economic inequality that has constrained policy making for deficit spending to undermine the function of government for selfish motives. Also, I am leery of anyone that ignores the stock and housing bubbles that lead to a level of consumption that hid the lack of income growth, transfer of expensive training costs to employees during a "skills" shortage, and erosion of employee benefits over the past 20-30 years. I understand the importance of the liquidity trap theory but things weren't so great for everyone back in 2000 either. Considering that most people are commoners not jet setters, it's a safe bet a substantial number of people are not consuming as much as they would historically due to a simple lack of money not want. How can an economy that is built on 70% consumer spending be efficient when there is so much income stratification that most people are discouraged from pursing any form of risk that requires more than a year's commitment? - Jay Wed, 23 Jan 2013 17:50:15 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21467 Krugman, Drum, Baker, all poo-poo the marginal-propensity-to-spend-from-income/wealth argument. None of you has explained why it doesn't make sense. When I run the numbers (in an admittedly limited model) I find that downward redistribution makes the pie bigger (faster), and that no redistribution either direction results in the smallest pie. Please! I want to understand what's wrong with this thinking, arithmetic, analysis. - Steve Roth Wed, 23 Jan 2013 07:55:54 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21460 The only part of the tax code that is marginally progressive is the federal income tax. Practically all other taxes are regressive. That is why when ALL taxes are taken as a percentage of ALL income, the top 1% pay less of a percent than the next 19% and not much more than the 60% after that. Mitt Romney pays less of a percentage of his taxable (not total) income in income taxes and social security than the bottom 20% ($13,000 per yr. avg.) pays in all taxes. http://ctj.org/ctjreports/2012/04/who_pays_taxes_in_america.php - FoonTheElder Wed, 23 Jan 2013 04:21:14 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21431 In the battle of Krugman vs. Stiglitz the winner is...... Dean Baker. - Glen Tue, 22 Jan 2013 04:34:42 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21417 To reiterate a point Dean made about the trade deficit. A high trade deficit (resulting fro an overvalued dollar) will tend to drive down savings. People will import way more (save less) than they otherwise would. Remember that identity Dean told us to burn into our minds (X-m) = (S-I) + (T-G) It explains why comparing the savings rate in two eras (one where you have a record trade deficit and another where you do not) is also going to lead you astray. - Joe Emersberger Mon, 21 Jan 2013 15:35:22 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21416 "Suppose we are redistributing 3 percentage points of income (roughly $400 billion a year) from the bottom 20 percent of the income distribution to the top 2 percent." Real Consumption: With income distribution trends such as this won't - and doesn't - the 2 percent go out and buy 100 United States Senators, Members of Congress, and the 50 State Houses? What share of total aggregate demand is total government spending? Reason there are 4 million people out of work for more than a year is that working people can't afford to contribute to political campaigns. - Union Member Mon, 21 Jan 2013 14:34:21 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21415 I don't get how Krugman's data is supposed to support his case. Why is he looking at overall savings rather than savings among the rich? I don't see why we should expect savings among the rich to have increased by more than savings among the middle class decreased. Any number of things could drive the overall trend, like the things mentioned in the post, I would add that the trade deficit and the influx of foreign capital that goes with it have lowered returns and discouraged saving among rich and poor, but that doesn't mean the rich aren't saving more. I'd also note that Milton Friedman's objection about people having good years and bad years was much more applicable in his day than today; very few of the 1% are people just having an exceptionally good year. One interpretation of Krugman is that he thinks Stiglitz's case depends on consumer demand having been weak pre-crash due to inequality, and he's showing it wasn't. But why wasn't it weak? Because middle class consumption grew even as incomes were stagnant, thanks to rising levels of debt. But that can't work forever; only so many loans make sense even when you're willing to make them at near zero rates of interest, so the consumption has dropped. Krugman says in theory we could all be employed as yacht builders, but just because the wealthy could demand more doesn't mean they have any more reason to do so than they did pre-crash. There's no theoretical or empirical reason to expect them to exactly replace the demand that the middle class is no longer providing. - Eric L Mon, 21 Jan 2013 14:27:22 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21414 Dean, instead of just modeling this in our heads with words, and you, Krugman, and Stiglitz do in this discussion, I'd really love to see convincing simulation models that might give us some more quantitative feel for these effects. Ones that weren't created by amateur econocranks like me. What about amateur econocranks like me? [url]http://economicreset.blogspot.com/2012/03/concentration-of-wealth-simulation.html[/url] Note also Geoff Willis's similar model (accompanied by a much more thorough paper) that I link to in my comment, as well as my comment. Our models are pretty similar and involve consumers consuming out of savings, rather than out of income, which will result in consumption reflecting long term income as per Milton Friedman's objection. While this trivial model produces very realistic distributions of wealth, inequality does not come anywhere close to observed values unless you assume the poor spend their money more quickly than the rich, which is one reason I suspect Stiglitz is right. - Eric L Mon, 21 Jan 2013 13:55:54 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21413 Hasn't a higher marginal propensity to spend for people of lower income been the staple, almost by definition, of progressive economics? Apart from what seems like massive historical evidence that there is no tradeoff between inequality and growth -- the 90s, the Depression years, the postwar years, Northern Europe since the 90s -- isn't the logical proof of it that marginal utility of expenditure declines as income increases? Income that is barely a blip for the discretionary income of the wealthy -- the loss of which will have little if any effect on standard of living -- will be determinative in the discretionary income for the middle class and lower income people. - urban legend Mon, 21 Jan 2013 13:40:56 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21412 "in the textbook story rich countries like the United States are supposed to be net exporters, sending capital to poor countries." So in the global village, instead of the rich people (countries) buying stuff from the poorer people, the rich are supposed to sell more to the poor than the other way around? Then how do the poor afford to buy stuff from the rich? Well maybe they are required to borrow money from the rich so that they can buy stuff from the rich? (Yes, I know, they are supposed to buy tools from the rich so that they can be more productive.) But in real life what happens? In real life their creditors take them over. What is the name of the textbook? Debt Peonage Made Easy? - Min Mon, 21 Jan 2013 11:18:22 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21411 http://www.ted.com/talks/richard_wilkinson.html - Perplexed Mon, 21 Jan 2013 10:24:54 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21410 "The more important point is whether we may suffer from a lack of consumption if we redistribute from low income people, who Stiglitz argues will spend most of their income, to rich people who he argues will spend a smaller share of their income." Isn't this exactly what Keynes was telling us with his marginal propensity to consume arguments? Did we ever really understand this or just give up trying to? How is this impacted by our oligarch's spending & investing their income overseas? - Perplexed Mon, 21 Jan 2013 10:03:27 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21409 Tax multipliers are usually always higher for lower income people than higher income people, clearly showing that lower income people will spend more as their income increases than higher income people. Perhaps I am not looking at this properly? - Antiderivative Mon, 21 Jan 2013 09:44:32 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21408 @ ezra abrams: [quote]A week or so ago, on the blog noahopinion, noah asked why the avg american has a low opinion of economists... [/quote] When it comes to this particular topic, I think the answer is much more simple than you suspect. I'm completely unable to understand the exact arguments at issue here. I feel like half the paragraphs on this page are written in a different language. - watermelonpunch Mon, 21 Jan 2013 09:14:03 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21403 Dean, instead of just modeling this in our heads with words, and you, Krugman, and Stiglitz do in this discussion, I'd really love to see convincing simulation models that might give us some more quantitative feel for these effects. Ones that weren't created by amateur econocranks like me. Any leads? - Steve Roth Mon, 21 Jan 2013 07:49:31 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21401 here you have two nobel prize winners (stiglitz and krugman) who can't agree on what would seem to be a basic fact, for which one would expect copious empirical data (total consumption vs income distribution) what the HE** do you economist do all day ??? Why the heck don't you have data ??? And why on earth would any intelligent person (which presumably includes stiglitz) publish an article without having his factual ducks ina row ????? A week or so ago, on the blog noahopinion, noah asked why the avg american has a low opinion of economists... well this sort of sandbox dont' step over that line type of public argument has to be a big reason As inequality rises, a larger fraction of consumption will go to luxury goods, which are not mass produced. This means that investment in the mass production/hi tech sector will fall, making us less competitive with the rest of the world. I think also that economist don't realize that we have a glut of savings; we don't need to save more money for investment - talk to any VC; the problem is not raising money - it is easy to raise money - the problem is finding places to spend it; there is more money then good ideas. - ezra abrams Mon, 21 Jan 2013 06:37:40 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21400 http://krugman.blogs.nytimes.com/2013/01/21/more-on-inequality/ "Dean Baker makes a couple of very good points, one on saving, one on the budget. I pointed out that saving seems to have declined, not increased, as inequality rose; Dean points out that sharply rising asset prices might be the explanation. Fair enough, although I think the burden of proof is on the other side: if your claim is that inequality causes a persistent shortage of consumer demand, you should find the actual strength of consumer demand problematic. Dean also makes a terrific point about inequality and the budget: while taking from the poor and giving to the rich probably increases revenues, it also increases spending on means-tested programs, so the budget effect may be negative after all. Indeed: I should have remembered that the highest effective marginal tax rates in our system fall on low-income working families (pdf), who lose benefits as their incomes go up. I doubt that even so the effect can be large, but it’s always a good idea to remember that we have a tax-and-transfer system, not just a tax system. So, interesting stuff — and it’s good to be having a real discussion about these issues. I still think that we need to fight inequality for long-run reasons, and that trying to shoehorn the post-financial-crisis weakness into the same framework just weakens our credibility. But it’s not a big deal." - Peter K. Mon, 21 Jan 2013 06:26:20 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21399 The real problem of inequality is more political than strictly economic - something that Dean has emphasized for a long time. If demand is low, private investors have little incentive to invest because they do not see immediate advantage (sorry, they don't really believe in Say's law). In econo-speak, this is a liquidity trap. The Keynesian solution is to take the investment decisions away from the free market temporarily - have the government make them according to the needs of society, rather than the benefit of the people who have the potential investment funds. The more money plutocrats have, the more political power they have to prevent this - they don't want government taking over the economic decisions, even temporarily. Surely Krugman would agree that this is a major problem with inequality. In depressions, the free-market system has broken down. It does not make sense to restrict thinking to what happens in that system under ideal circumstances. - skeptonomist Mon, 21 Jan 2013 06:22:25 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth#comment-21398 Apparently Krugman thinks that GDP could be just as great if most of it were devoted to making yachts and other luxury items for plutocrats. This is just not the way modern economies work - they are based on mass consumption. Even leaving fairness aside, the way to expand the economy is to make products for everyone, not just for a few. He also ignores the way inequality leads to non-productive speculation and other useless financial activity. When the few have all the money, and there is no demand because of low wages and unemployment, that money is not used productively. Maybe Krugman's post was a defense of monetary policy, which by its nature is a supply-side tool, injecting money for "job creators" to use as they think fit, not as society needs. - skeptonomist Mon, 21 Jan 2013 05:51:39 +0100