Sunday, July 22, 2012

Krugman: Turn Back the Clock!

One of the favorite lines from American Progressives that is used whenever someone speaks of something good that occurred in the past is: "You want to turn back the clock." To get a sense of how often the phrase is used in just the New York Times, I did a Google search on the phrase and NYT editorials and found that the editors love to use "turn back the clock" as a derisive term.

Yet, one of the enduring themes from Paul Krugman's columns and blogs has been that we need to "turn back the clock" on regulations and high marginal tax rates (rates that he told a number of economists in answering a question I asked him in 2004 were "insane") and return to the 1950s. He does it again in a recent blog post in which he refers to a Brad DeLong piece about executives from that era:
Brad DeLong points us to an amazing Fortune reprint: a portrait of American executives in 1955, back when inequality was much lower and tax rates at the top much higher than they are today. The business leaders of the time led straitened lives by historical standards — they were substantially poorer than the previous generation of executives.
The article goes on to quote from the Fortune piece:
The executive’s home today is likely to be unpretentious and relatively small–perhaps seven rooms and two and a half baths. (Servants are hard to come by and many a vice president’s wife gets along with part-time help. So many have done so for so long, in fact, that they no longer complain much about it.)
The large yacht has also foundered in the sea of progressive taxation. In 1930, Fred Fisher (Bodies), Walter Briggs, and Alfred P. Sloan cruised around in vessels 235 feet long; J. P. Morgan had just built his fourth Corsair (343 feet). Today, seventy-five feet is considered a lot of yacht. One of the biggest yachts launched in the past five years is the ninety-six-foot Rhonda III, built and owned by Ingalls Shipbuilding Corp., of Birmingham, Alabama. The Rhonda III cost half a million dollars to build, and the annual bill for keeping a crew aboard her, stocking her, and fueling her runs to around $130,000. As Chairman Robert I. Ingalls Jr. says, only corporations today can own even so comparatively modest a craft. The specifications of the boat that interests the great majority of seagoing executives today are “forty feet, four people, $40,000.” In this tidy vessel the businessman of 1955 is quite happily sea-borne.
So, what are we to make of this particular set of circumstances? Krugman explains:
According to modern conservative dogma, this kind of punishment of “job creators” should have brought economic progress to a screeching halt. Yet according to Fortune, executives continued to work hard — and the postwar generation was actually a period of economic progress that has never been matched.

Somehow, John Galt never made an appearance.
I'm not sure what Krugman wants to claim, but it seems he is saying that the 90 percent tax rates and the fact that all forms of finance, transportation, and communications were heavily regulated and operated in what essentially were cartels apparently was the optimal state of the world. So, why didn't this happy state of affairs go on forever?

Krugman's answer is that conservative ideologues suddenly captured American politics and turned America into a hellish nightmare by deregulating finance, deregulating transportation and communications, and lowering the top tax rates. In previous posts, I have pointed out that many of the deregulation initiatives came from "conservative Republicans" like Ted Kennedy, Alfred Kahn, and Ferdinand St. Germain.

Yes, I am supposed to believe that conservative Republicans were in charge when JFK pushed for lower marginal tax rates, even though Democrats dominated the House and Senate, and controlled the White House and U.S. Supreme Court. The Krugman rhetoric simply does not match what happened during that time.

There are a few things he doesn't mention. First, while there was economic and financial regulation, the other kinds of regulations that Krugman cherishes, such as environmental regulation, were in their infancy. Second, the 1950s also was the decade that produced John Kenneth Galbraith's virulent anti-capitalist books, along with the view that companies like General Motors actually were a threat to our well-being, and that the model Krugman praises was creating horrors like "The Organization Man" and the like. Third, there is the problem called Detroit.

During the 1950s, Detroit was the model U.S. city. It boasted the best-paid industrial workers in the world, its unions controlled city and state politics. If anything, Detroit was the model of what Krugman would consider to be the ideal society.

Yet, today the city literally is in ruins. Its unions still control the politics, but they cannot control economics and Detroit is a ward of the federal government. So-called conservative Reaganites never have gained control of the politics of Detroit, so how does Krugman explain the city's slide into oblivion?

So, if "turning back the clock" is the answer, then why did the clock move in the first place?

Oh, and Michael Milken was and is a liberal Democrat. Really.


8 comments:

Sukrit said...

Dear Bill,

I'm with Liberty Australia (la.org.au). Mind if we republish some of your articles? Can you provide blanket permission or is it a case by case basis?

Regards,
Sukrit

Lord Keynes said...

"... the 1950s also was the decade that produced John Kenneth Galbraith's virulent anti-capitalist books"

I'll say one thing for this blog: it always provides a good laugh.

So John Kenneth Galbraith's books were *virulently* anti-capitalist books, were they?

Exactly how, pray tell?

Bala said...

"Exactly how, pray tell?"

Exactly how does one explain this to someone who completely fails to understand the very term "capitalism" and who has absolutely no understanding of economics? Exactly how, pray tell?

Meng Hu said...

Lord Keynes -> "I'll say one thing for this blog: it always provides a good laugh."

Ironic for who is spending time censoring comments in his blog. Especially when the comments contradict your view. He deletes all comments he disagree with. There is no need to discuss with him. It's a complete waste of time. I realize that today.

Everyone, if you want me to tell you the truth, "Lord Keynes" censored my posts in his blog many times now. Recently, my 4 ou 5 very long posts have not been published (probably deleted) while the other posts passed through his "moderation". I am getting used to be censored.

JFF said...

Aww, what happened LK? No flood of pointless statistics whose relevance hinges upon your tenuous grasp of elementary logic and the arbitrary redefinining of certain basic economic concepts along with such key words as "the" and "is?"

William L. Anderson said...

You can reprint anything you like. Thanks for thinking of this blog.

Anonymous said...

Lord Keynes definitely censors comments he doesn't agree with on his blog. Quite a cowardly action.

ALima said...

Who is Lord Keynes?