Herb Gintis Reviews Paul Krugman's "The Conscience of a Liberal"

Herb Gintis reveals that his years on the left have transformed him into a man who buys the substantive argument of how the world works made by the right. Herb writes that more progressive income taxes are bad for the middle class in the long run:

Krugman should know that if the wealth were redistributed to the middle class, the US investment rate would fall, since the rich save their money and it is translated into investment, whereas the middle classes would spend their gains on consumption, thus driving out investment. A "soak the rich" policy simply cannot work to the advantage of the middle classes...

Marty Feldstein could not put it better.

Here is the whole review, on Amazon:

Amazon.com: H. Gintis' review of The Conscience of a Liberal: "Being progressive,'' says Paul Krugman in the concluding pages of The Conscience of a Liberal, "means being partisan." Like Krugman, my training lies in economics, but unlike Krugman, I am not partisan. Rather, I take a policy orientation to social issues: there are problems to be solved in order to enhance the lives of citizens, and it is our job to discover and publicize solutions to these problems.

Krugman's partisan stance only clouds the issues. For Krugman there is a "union movement" rather than a "bureaucratic labor aristocracy," critics of the welfare states want to "turn back the clock," rather than streamline and curb the inequities of the welfare state, conservatives have won by "exploiting cultural backlash" rather than by mounting a principled opposition to the explosion of crime, drug abuse, and single-headed households in a manner that resonates with the voting public. Critics of the wealth tax are "financed by a handful of [super-rich] families," with the public being ignorant dupes of the slick politicians.

This book epitomizes what is wrong with American liberalism. Krugman was a fine, perceptive international trade theorist, but he is a political hack, with nothing new to offer. There is one problem as far as Krugman is concerned: inequality. But inequality is an intellectual abstraction, not a politically motivating issue. People hated the Robber Barons because they were robbers and barons, not because they were rich. Oprah Winfrey and Bill Gates do not send the Pinkerton men out to protect their ill-gotten gains; nor to the other super-rich.

Socialists' ringing political slogans dealt with fairness, social progress, and power to the people, not "inequality." Moreover, a truly progressive movement must built on technical progress that is impeded by the reigning powers that be (Sam Bowles and I call this efficiency-enhancing egalitarian redistribution), not the beggar-thy-neighbor, zero-sum-game sort of redistribution favored by Krugman.

I suspect Krugman is correct in saying that the degree of inequality in the USA today is the product of politics, not economic necessity. This is because some advanced industrial countries have more equal distributions of income and wealth that the USA (e.g., France, Germany). But, these countries are plagued by bureaucratic inefficiency and deeply threatened by the "lean and mean" up-and-coming countries like Poland, the Baltic States, Romania, India, et al. The USA has purchased a thriving economy and full employment at the cost of having a bunch of super-rich families. Not a bad deal, after all.

Krugman's vision for the future has three key premises, all wrong.

First, he believes progressives can win on a platform of redistributing from the rich. However, no one cares about inequality. People care about injustice, unfairness, poverty, sexual predators, family values, gay marriage, terrorism, and many other problems of everyday life. People don't care about Gini distributions and other abstractions. Moreover, Krugman should know that if the wealth were redistributed to the middle class, the US investment rate would fall, since the rich save their money and it is translated into investment, whereas the middle classes would spend their gains on consumption, thus driving out investment. A "soak the rich" policy simply cannot work to the advantage of the middle classes.

Second, Krugman would strengthen the labor unions, which he credits for their egalitarian effects. However, unions were strong only when industry was highly non-competitive in such areas as automobiles and steel. The oligopolistic character of mid-twentieth century industry, with a few countries in the lead, made fighting over the excess profits highly rewarding. With globalization, there are no excess profits to be fought over. Thus, it is not surprising that most successful unions in the USA are public service, not private (e.g., teachers, government employees). There is no future in unionism, period.

Third, Krugman believes that liberalism can be restored to its 1950's health without the need for any new policies. However, 1950's liberalism was based on southern white racism and solid support from the unions, neither of which exists any more. There is no future in pure redistributional policies in the USA for this reason. Indeed, if one looks at other social democratic countries, almost all are moving from corporate liberalism to embrace new options, such as Sarkozy in France (French socialists have the same pathetic political sense as American liberals, and will share the same fate).

I am sorry that we can't do better than Krugman. There are very serious social problems to be addressed, but the poor, pathetic, liberals simply haven't a clue. Conservatives, on the other, are politically sophisticated and hold clear visions of what they want. It is too bad that what they want does not include caring about the poor and the otherwise afflicted, or dealing with our natural environment. Politics in the USA is no longer Elephants and Donkeys; it is now conservative Pigs and liberal Bonobos. The pigs are smart but only care about what's in their trough. The Bonobos are polymorphous perverse and great lovers, but will be extinct in short order.

One final comment. Herb "conservatives... are politically sophisticated and hold clear visions of what they want... too bad that what they want does not include caring about the poor and the otherwise afflicted, or dealing with our natural environment... conservative pigs... are smart but only care about what's in their trough" claims that he is non-partisan?

Comments

[Ken Houghton]

Marty Feldstein presided over the most regressive taxing of the middle-class in recent U.S. history, and set the template for the current rape of the middle class.

The effect on the US savings rate is there to be seen. It's a pity Gintis Kant Read.

[derek]

"the US investment rate would fall, since the rich save their money and it is translated into investment, whereas the middle classes would spend their gains on consumption, thus driving out investment."

But I thought consumption was *gooood* for the economy, isn't that what they always tell us? Oh, it's so confusing.

[Bruce Wilder]

Even when Galbraith was plagiarizing Gintis and Bowles, I thought they were bad economists.

Gintis is still a bad economist. His political sense, though, may be pretty good.

[Ian]

Of course the rich benefit from the current system which discriminates in favor of the rich who can afford the representation to shelter vast sums.

Conversely, Huckabee's FairTax is demagogued as an "anybody-knows-that's-regressive" tax. How regressive is it?? The effective tax rate percentages, that different income groups would pay under a FairTax consumption tax, are calculated by crediting the monthly "prebate" (rebate of tax on necessities) against all likely monthly spending of citizen families (1 member, and greater based on figures established by the Dept. of HHS - a single person receiving ~$200/mo. A family of four receiving ~$500, in addition to family earners receiving their WHOLE paycheck). Prof.'s Kotlikoff and Rapson (10/06) have concluded,

(From study: http://snipurl.com/kotcomparetaxrates ) "...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.

"Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."

Further,

(From study: http://snipurl.com/kotftmacromicro ) "...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."

This compelling, and well-documented, research demonstrates that it's well past time to scrap the tax code ( http://snipr.com/scrapthecode ) and pay for government the way that America's working men and women are paid - when, and because, something is sold!

(Permission is granted to reproduce in whole or part. - Ian)

[marcello]

uh, WHY would having more money to spend _hurt_ the middle class , or, in other words, WHY is "investment" more important to the middle class than having more money to spend ?
How am I benefiting if I have less to spend but the rich have more to invest ?? (in off shore tax havens, but let's not go there)

quackonomics.

[Maynard Handley]

"Conversely, Huckabee's FairTax is demagogued as an "anybody-knows-that's-regressive" tax. How regressive is it?? "

Actually, "Fair Taxes" are "demagogued" as "the people who support them are clueless morons" taxes. The issue with taxation is not the question of how difficult it is look up the amount of tax owed on your income in a tax table. The issue is how is "your income" defined. There is no trivial way to solve this problem even if you are TRYING to be honest and reasonable; and no sane person has any reason to believe that politicians, democrat or republican, have much interest in being honest on this issue.

Bringing wealth into the tax code simply opens the door for even more such abuse. I can just see one scam after another --- someone petitions for houses not to be part of the system, and next thing you know, vacation homes and rental property aren't being taxed. Someone sets up a scam whereby wealth can be owned by a trust or a corporation which is controlled by a single person, but which is not subject to wealth taxation (so much for the 14th amendment), etc etc.

So what we will get if these sorts of taxes are put in place is a system that does little to nothing to modify the loopholes that allow the wealthy to defer or redefine income; but which DOES instate a yet lower tax rate on such income as they have that they couldn't managed to avoid being classified as income for this year.

BTW, what is Huckabee's stand on one of the most egregious such examples of redefining income, the dodge that allows hedge fund managers to claim that their job income should count as capital gains?

[Octavian]

Mr Gintis is also quick to write off the unions. While unions in the US have been under successful attack since Reagan, my impression is that in other industrialized countries, unions play a much larger role in ensuring the distribution of income---either in direct income or through government services paid out of taxes---does not get as skewed as it has in the US. I thought lefties were supposed to like labor.

[wood turtle]

How odd that a neoliberal like Krugman, globalization for all, should be a champion of the middle class, the ones he has hurt the most. What kind of deal is going on here?

I think you can read his work "In Praise of Cheap Labor" on one of his websites, and after you read it, you will have no desire to know anything else that he has to say.

And what is Mr. Gintis thinking that the increase in taxes on the rich are necessarily going to go to the middle class? The government has some serious problems that need to be taken care of, investments to be made that all classes are going to have to pay for one way or another.

[Doctor Jay]

I'm tempted to say that he's right about progressive taxation not being a big seller. But maybe the more accurate thing to say is that nobody has yet been able to make it a big seller. Bill Clinton didn't make it his centerpiece, but he had some pretty good rhetoric around it.

I think the main problem is that it's too abstract. It needs to be tied to problems that are staring you in the face, with solutions that seem commonsense.