The Good Old Days

Over at Marginal Revolution, Tyler Cowen points to Paul Krugman's new blog.  And Krugman doesn't surprise, as he focuses once again on how things were much better in America during the 1950-1970 period when we were more egalitarian due to union membership, relatively high minimum wages, and a progressive tax system.

  This is the image he uses to illustrate his position.

But how wonderful were those old days really?

Comments

[Steven Horwitz]

Crappy. Let's talk about the real consumption possibilities for the poor. How much do we care about inequality if life for the poorest among us continues to get better and better?

And the slow increase in median income may be the result of increased immigration which has brought more people in "at the bottom." A slower growing median says nothing necessarily about the income gains of households in the sample for the whole period.

[matthew mueller]

I have always believed that it is extremely dangerous to make arguments against increasing government intervention on purely economic grounds. This is what Austrians usually tend to do. Many critics have dubbed this tendency "economism" and Hayek was no less culpable of this propensity than Marx. Economism is the tendency to reduce everything to economic considerations: measuring the quality of living standards according to the extent of consumer choice, the rate of ownership, amount of leisure, etc. etc.

There are problems with this approach for several reasons. We should never favor free markets because they produce better outcomes than more regulated ones. The certainty with which we speak of this superiority of market efficiency is by no means a universal law. All knowledge is provisional, and subject to rapid and dramatic change. Nothing is certain, simply because knowledge of the world can never be completely exhausted. This makes a defense of the free market on purely economic terms problematic.

In short, we should not favor free markets (minimal government) because it is more efficient; instead we should argue in its behalf because it is more just, more fair.

Where would we be as Austrian economists if the government managed to outperform private entrepreneurs? Just because the past has not shown this to be possible does not mean it is necessarily precluded from revealing itself sometime in the future.

I do not disagree with Krugman because he is practicing poor economics. I disagree with him because his political philosophy has troubling implications for those who favor classical liberalism.

[diz]

Presumably the vertical axis is share of pretax income?

It's interesting to ponder the mechanism by which progressive taxes affect pre-tax income.

The one that comes to mind immediately is that potentially highly productive people have less incentive to produce -- therefore don't.

The trouble with ratios (e.g., middle class income over total income) is that there are two ways to increase them. Numerator up, denominator down.

[TGGP]

matthew mueller, economics has nothing to say about fairness or justice. There are no truths concerning fairness or justice to be said.

[Rafe Champion]

Strange how the Great Divergence kicked in just after the Great Society programs of the '70s when we were all Keynesians! Maybe Charles Murray was onto something ("Losing Ground"). http://www.amazon.com/Losing-Ground-American-Social-1950-1980/dp/0465042333 Check out the first review for a summary.

Next Krugman will blame the Great Depression on unfettered free markets!