Inequality Is a Drag

The gap between the rich and poor in the United States has grown so wide that it is inflicting a lot of economic damage and makes a new case for trickle-up economics.
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Many of those relying on that chronic "marginal" income are not capable of functioning in the work market, physically and (as is becoming apparent) mentally. They don't have the necessary components, and a clarion call to bootstrap pulling is not going to push them into a workforce that can't use them.
In the good old days (popular mindset, those good old days) of lower population, and more intimate connections within a town, these people would find some sort of function to perform, or they would be included in civic life by family and friends. That ain't happening so much now, and I would suggest that the luxury of financial security and the independence it affords is creating a very private society; one can avoid the misfits in so many new ways.

Of course, Richard isn't talking about these damaged people receiving chronic public assistance - which are a huge majority of recipients. He's talking about slackers and perfectly fit people idling away their lives on the government dole - which are a thin minority of recipients. Irritating as their presence may be, slackers have always held a niche in human society, The governments' meager checks - and the paperwork one wades through to get those checks - might keep them in skittles and diapers for a while without getting much more than sales tax out of them in return.
But if it keeps them from desperately burgling your car, making off with your domestic electronics, or occupying a $30,000/yr prison bed, it's not a bad deal.

21 2019-02-14 20:04:26 - mshea29120
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I agree with what Dr. K is saying. Supply side economics, and its tag on creed of de regulation, was worse than voodoo. It was made with an article of faith and took on mystical proportions which ended with the catastrophe of 2007-2008. That fools like Paul Ryan can still rely on it to promote a disgraced ethos. However, I think we are gonna need more than Paul Krugman exposing the fraud to get something done. The public, especially a very apathetic middle class, is going to have to get on board. Good luck on that one.
6 2017-10-11 09:01:51 - Paul
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Good for small business and for impoverished people. There's an idea.

0 2017-08-27 12:45:09 - DavidS
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It is not so much envy as it is desperation.

For example, what we have in place presently, financially, is like a bakery truck fully loaded and in the town it serves, it delivers 70% of the bread to the rich 3 or 4 houses and it leaves only one or maybe two racks of bread for the entire rest of the town with a couple thousand residents...and the same goes for all the rest of the items, from food to yard goods, whether needed or not, only a small fraction of what is needed goes to where the need is, while a lot of 'stuff' piles up at the rich folk's place.

Bad analogy in some ways, but it shows how mismanaged the POTENTIAL is and it does not show to the proper degree just how badly the money that has been hoarded by a few has been WASTED by it just sitting there, being nothing more than a 'point' in somebody's scorecard bank account.

Each Billion sitting in the bank is worth 20,000 jobs paying $50K/year and these so-called Job Creators are, collectively, just the corporations and big business, are holding at least $5 and possibly nearly $8 Trillion in CASH out of the system "because it is not a good business environment".

$5 Trillion is equal to 1 million jobs each paying $50K/year. Most jobs these days dont come near that, yet if that money flowed there would be secondary and tertiary jobs formed and even more money would flow to those ever-so-vaunted rich coffers.

The people with the money forgot the magic within it, that it has to flow to come back again and again!

2 2017-08-18 00:44:48 - B. Honest
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Well they better hurry up and find a way to get at the excessive wealth of the rich to help all people in the country. They are currently and perpetually trying to hide their money off shore or having politicians give them more and more tax breaks. Plus we better work fast to put together a progressive party in the country. The Democrats inability to stop the run away austerity train seems poised to put the country into decline. The electorate will have to wake up and smell the coffee not just carp from the sidelines.

5 2017-08-13 13:34:34 - c harris
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A rich man does not spend a large percentage of his money. A poor man does.

It seems obvious to a naive person like me that giving a poor man more means that more will go back into the economy. Trillions of dollars, sitting in banks and investments, enriches those institutions.

Capital, like water, needs to flow to remain fresh and keep our economy vibrant. Companies and persons sitting on huge cash reserves do very little for our overall economy. Invest and take risk by hiring people and buying equipment with all that money.

We are also at a dearth of ideas and that is troubling.

10 2017-08-09 09:25:46 - Aldo
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"Being nice to the wealthy and cruel to the poor is not, it turns out, the key to economic growth."

Egad, no wonder this man won a Nobel Prize!

4 2017-07-29 15:30:54 - Lars
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Perhaps some little line of Legislation stating that a Bank must pay a tax based directly on the amount of leverage used for said transaction: If a bank uses, say a 5-1 leverage, thus having a whopping 20% of the actual money to cover the entire transaction, then it would be taxed at 80% PLUS any profit tax based on the original transaction.

Of course, higher levels of leverage would result in higher taxes I.E. the basic going rate today is 20-1 which would lead to a 95% tax off the bat...imagine banks having to suddenly have ALL of their skin in the game and with bringing back Glass-Steagal the Banks would suddenly be playing with not only ALL of their skin in the game, but ONLY Their skin in, not the customers whom they have been fleecing for so terribly long.

A tax on Stock Market transactions, and charge a minimum for each bid and sale notice, make there a 10 minute delay between offering and bids and sales to eliminate the high speed market manipulators that have dominated stock trading houses. A 10 minute delay is a lot faster than they had to deal with when everything was posted strictly by hand first and gives ALL the people participating in today's market a chance to thrive, even-handedly without High Tech owned by Big Money driving out all of the "Small Fry".

It might even lead to "Market Confidence" for a change!

0 2017-07-04 19:06:58 - B. Honest
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The Rich and Powerful are not an American invention, not a Capitalist invention: it is a human invention resulting by some people getting the fruits of their labor and a portion of other people labor also, through force, money, or the hope of elevating to the group of Rich and powerful, of because the legislature favors them with laws that make them Rich and Powerful. Mostly, in recent history, its been the latter. Representative Government, that Rousseau call "Elected Aristocracy" has universally passed laws that were not in the interest of the people who voted them into office. The only cure for economic inequality and political inequality is Democracy, Actual Democracy, not Representative Democracy. It's simply the people keeping the responsibility to vote directly on the laws under which they will live and delegating those votes to representatives. The idea comes from 500 bca, see Pericles funeral Oration in Thucydides. Then Thomas Paine, Jefferson, J.S. Mill, Bertrand Russell. The people voting for the laws is Democracy, nothing else is, Nothing else is Actual Democracy:go to assosactualdemocracy.com join it, support it, and make it so there is no longer Inequality to cause us to debate how to fix it.

7 2017-06-25 18:02:33 - Roger Duronio
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Prof. Krugman says: "But American inequality has become so extreme that it’s inflicting a lot of economic damage." That's true only if the trend toward lop-sided distribution feeds upon its effect of rising inequality.
It really can't go much further that way, just because if average wealth goes even lower, then people would have even less money to buy goods, and that would be counterproductive to rise in wealth of the 1% vs the 99%.

So far, part of the problem of how rich corporations are abusing the whole economic system, is in how they have been getting a larger share of sales outside the U.S. through so-called globalization. And except for doing exactly that, the U.S. could be regressing most pathetically, and be becoming one of the least productive of industrialized nations.

Worse, except for the fact that the best-performing companies, and those that have recently been competing against overseas competition, have been doing so only so well because they have very low taxes, e.g. Apple Computer. Essentially, the U.S. is very near being "on life support", except for fact it has companies like Apple Computer.

So if as Prof. Krugman intones, we need to reduce the inequality, and do so by taxing the rich companies more, that might, sadly, actually have no such effect at all like that.

There should exist a solution, other than trying to save the economy that way. We have yet to see it being pronounced by any economists, let alone by any politicians.

9 2017-05-31 07:17:02 - R. Karch
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The top 10 percent of income earners paid 71 percent of all federal income taxes in 2010, though they earned only 45 percent of all income. The bottom 50 percent paid 2 percent of income taxes, but earned 12 percent of income.
Other studies have shown that taking every cent of the top 10%'s income would run Medicare, Medicaid and Social Security for a year. But that wouldn't happen legally, and even if it did the rich would be renouncing their citizenship in droves.
Taxing the rich to solve poverty is just one more false hope in the war on poverty, which has a history of spending trillions of dollars on failed schemes.

3 2017-05-20 00:31:49 - Cecil
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mshea29120:

Our poverty rate is over 15% -- has been, with ups and downs, since we inaugurated our "War on Poverty" 50 years ago with the stated objective of eliminating poverty. So ... how're we doing on that?

But, today, 15% of our population is about 47 MILLION people. That's about the entire population of SPAIN! You're claiming that the entire population of Spain isn't capable of functioning in the work market, physically or "mentally"?

Excuse me as I indecorously pass a kidney stone I'm laughing so hard.

I've known corner Korean and Puerto Rican convenience store owner/operators in Manhattan who started 50 years ago as push-cart vendors, salt-of-the-earth types but who lack the most basic skills and aren't precisely Einsteins, to boot, who are wealthy as a consequence of VERY hard work and prudent lives. If someone 50 years ago had given them just enough to barely feed their families without working so hard ... would they have become the people they became? Would they have worked as hard as they did? I'd like to think they would have, but I suspect that at least some wouldn't. Those that didn't, who took what to them would have been the easier path, never would have grown wealthy, never would have educated children, and would have merely subsisted all these years.

Our well-meaning but dreadfully unwise social policies have real impacts on life outcomes.

0 2017-05-06 02:38:07 - Richard Luettgen
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Yes, I was thinking the same thing - that this is the real meaning of the reduction of "work effort." Food stamps reduce the need to neglect one's children in order to help them survive.

0 2017-05-04 14:34:19 - miriam
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Even American plutocrats understand that trickle down doesn't work, and that a low-income child has very little opportunity to make most of her talent. This is why the plutocrats and their apologists have re-discovered the old argument that the rich are rich because they are inherently superior and the poor poor because they are inferior for some reason or another. This can be worked from many angles like Calvinism, racism, a misreading of Weber's Protestant Work Ethic, or ludicrous claims of moral decay. These many angles make the main argument not always easy to detect, but it is out there and poisoning American politics from Charles Murray to David Brooks.

1 2017-04-24 21:41:47 - EBurgett
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"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."

yes, and then they play the other side by insisting that there is nothing wrong with making all the money you can..... which means no money for the needy. it's all about me all the time with this crowd.

10 2017-04-21 00:31:33 - coale johnson
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What makes these discussions hard is that people like to think about input/output relationships in very simplistic terms: if you increase this thing, that thing will decrease, or that other thing will increase. The problem is that in economics what usually happens is that if you increase this thing, some other thing will increase for a while, but if you increase the first thing too far, the other thing starts to decline. For example if you throw a ball in the air, as time increases the ball goes higher - to a point. Then it begins to fall. In mathematics one would say that the height of the ball is not monotonically increasing with time.

Economic health doesn't monotonically increase with flattening of income distribution. At one extreme, it would clearly be bad if income was totally concentrated in the hands of one person. On the other hand, if income was distributed flatly, that would also be bad since some concentration of capital is needed to provide the investment needed for a modern economy to operate. I think that if they understood the relationship both left and right would like to find the sweet spot in between these two extremes where economic health is maximized, but without recognizing that the relationship isn't monotonic, both sides are going to talk past each other. Even though I agree with his view that we are at a point where wealth concentration needs to be reversed, economists like Dr. Krugman have an obligation to explain the bigger story.

22 2017-04-04 06:00:22 - Steve
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The only reason we care about growth in the first place is because we assume it's a good proxy for an increased standard of living by most of us, or the average person, or something--in other words, what it means about the life we are living. If economic growth, no matter how big, goes to a limited number of people it is by definition a problem. But it's certainly not surprising that de facto wage slaves aren't as productive as people with a real chance to make something of their lives.

0 2017-03-28 06:42:01 - TvdV
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@ Mr. Hadley: Bravo! Let's call it "Humanomics".

3 2017-03-24 09:38:03 - Louis V. Lombardo
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The extreme test of the effects of inequality may be looming in the form of the Ebola virus spreading across nations. People in nations lacking access to basic health care also lack knowledge and means to protect themselves against infectious diseases. Heaven forbid but if the Ebola virus invades and spreads across the United States, it will be the states that have blocked its poor citizens access to subsidized Obamacare that will suffer the worst outcomes. Further, the Ebola virus, which doesn't observe class distinctions, will find it easier to spread from the poor to the better off in those states. In an epidemic public health is for all or for none at all! The exception may be the super-rich who with advance warning can ride their private jets with personal physicians in tow to remote locations far from the spreading contagion.

1 2017-03-15 23:07:34 - John H Noble Jr
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Yes, we watched our spending and made sure we were saving/investing on a regular basis. And I have no objection to pay the same rate of tax on the income associated with that as on the "other" work that we do. I won't like it, having been spoiled for some years now, but I recognize the fairness of it. Furthermore, while you and I may have used the money we got from our work and held on to through careful spending, others are enjoying gains on money they did nothing to earn but simply inherited. Yet others are are gaining wealth because they already have wealth in excess of what they need to live the life they desire, including the fact that income from things like interest, dividends, etc., can simply be plowed back into gaining more of those things with no need to work OR to sacrifice. And further, just what should a person working full time at minimum wage forego in order to be able to invest? The choices are not the same as for the person whose annual income is ten times that of a minimum wage earner.

10 2017-03-13 16:11:48 - Annie

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