Friday, June 10, 2005

Krugman says: Egalitarian Democrats engineered the Great Depression and World War II.

From Paul Krugman's column today:

"...let me just point out that middle-class America didn't emerge by accident. It was created by what has been called the Great Compression of incomes that took place during World War II"
He gave more details about this earlier, in an article in The Nation:

During the 1930s and '40s, however, America experienced what the economic historians Claudia Goldin and Robert Margo have dubbed the Great Compression: a drastic narrowing of income gaps, probably as a result of New Deal policies.
What happened during the 1930s? Hmmm.... The Great Depression. And in the '40s, yes, there was the aforementioned World War II.

Yikes... the Great Depression and World War II were "New Deal policies"! And they were no accident!

This "probably as a result of New Deal policies" has been one of my favorite Krumanisms from the day it was printed, left off my "Okrent list" only because it wasn't printed in the Times. Ya gotta love such things.

Krugman today again:

Adjusted for inflation, the income of the median family doubled between 1947 and 1973.
Yes ... but shouldn't he mention that this followed a collapse in median family income during the Great Compression of the 1930s and 1940s ("probably as a result of New Deal policies")?

After all it's not like this post-1947 rise started from any sort of healthy base income level, as existed in 1973. It was from a calamitous, aberrational low -- and following years of mass conscription and wage controls that kept family incomes down artificially.

It is a surprise that incomes would rise at a faster than average rate for some years as normalcy returned after all that?

OK, now if one wants to talk about Krugman's "slicing and dicing" as per Okrent, consider how he ...

1) slices all mention of the Great Depression out of the Great Compression in his Times column -- to give the impression that the Compression resulted from enlightened, benevolent, (Democratic) policy.

2) diced his numbers to come up with his analysis in the Nation story, which he basically looks to be recycling here. That dicing was nicely worked out over at Econopundit at the time -- be sure to read down all the way through "Update V" ... and let's not overlook this exceptionally fine contribution in the comments to Brad DeLong's blog entry on all this...
"I talked to Emannuel Saez himself [whose data Krugman diced cited] last night about the disparity between his graphs and the Census' of changes in real income of the lower 95% of adults between 1973 and 2000 -- his graphs show their real income dropping while the US Census' show them rising.

"Lo and behold, it turns out that on this point Glass is entirely right and Krugman wrong..."
Now, as a matter of fundamental substance, one might also point out something that the "income gap" class warriors never do -- that the real measure of welfare, of economic well-being, is consumption, not income.

Of course, the reason they never point this out is that the "consumption gap" is not nearly as large as the income gap, and has not been increasing with the income gap.

Much more on this later. But in the meantime, we will note that economists other than Krugman have observed this fact and considered it important -- even to the point of discussing it in the NY Times!

Note: Tom Maguire observes that the word depression (small "d") does finally appear in Krugman's closing of today's column...
....the middle-class society we have lost emerged only after the country was shaken by depression and war...
He also notes that it didn't appear at all in Krugman's much longer NY Times Magazine piece of a while back that covered the same ground of the Great Compression -- and I note that he (Tom) covered this omission of the D-word comprehensively a good three years before I got around to it here.

I'll just refer Krugman's above closing reference back to his opening claim that "middle-class America didn't emerge by accident".

For Krugman's version of "middle class America" (with its poorer middle class) was created by the Depression, and by the costs, mass conscriptions and controls of World War II.

So we can surely say that unless the creation of Krugman's version of middle class America was the intention behind these events, then in fact it did emerge by accident. No?

And beyond that we have a basic question: did we really, in fact, create a middle class society in this nation during 1930 to 1946 by making the middle class poorer, because the richest lost even more?

Personally, I think not, not only for reasons that should be self-evident*, but also because once again, as far as welfare and societal health is concerned, it is consumption -- not income -- that counts, and the consumption distribution is very different from the income distribution (and even more different from the picture of the income distribution Krugman typically presents).

More on this later.

* Years ago, as the world's least able student of the Russian language, I had the great learning experience of spending some time in the Soviet Union. They had a joke that they told over there to explain their long history of economic good fortune, which ran something like this:

God visits Ivan and says, "You have been a very good man so as a reward I will give you anything you desire -- gold, a dacha, whatever. But your neighbor Dmitri has been an even better man, so he will receive two times as much of the same -- twice the gold, two dachas, etc. But I will let you choose for both of you."

Ivan thinks for a moment and says, "Lord, make me blind in one eye."

And thus the Russian middle class was created.