Paul Krugman’s Solution to ‘Wealth Inequality’ Masks Its True Causes

by Mar 28, 2014Liberty & Economy2 comments

The Chicago Federal Reserve Building (TonyTheTiger/Wikimedia Commons)

Paul Krugman's frequent writings on "wealth inequality" serve to divert attention away from the role of the Federal Reserve in transferring wealth upwards.

Paul Krugman has been writing a lot lately about the topic of “wealth inequality”. There is a “growing concentration of income in the hands of a small economic elite” and a “drift toward oligarchy”, he writes. His prescription for combating this trend is, of course, even more government intervention in the economy and the use of force to expropriate wealth from some in order to redistribute it to others. And then he argues:

It’s fairly common for conservative economists to try and shout down any discussion of income distribution by claiming that distribution is a trivial matter compared with the huge gains from economic growth…. The usual answer to this is to point out that we don’t actually know much about how to produce rapid economic growth…. And on the other hand, we know how to make a big difference to income distribution, especially how to reduce extreme poverty. So why not work on what we know, as at least part of our economic strategy?

But even this argument may be conceding too much. A new study finds that in poor and lower-middle-income countries, one of the most crucial aspects of well-being, child malnutrition, isn’t helped at all by faster growth:

An increase in GDP per capita resulted in an insignificant decline in stunting. And when the researchers compared the changes in GDP to the changes in the number of wasting and underweight children, there was no correlation at all.

So, gosh, child malnutrition can remain unaffected in a country despite an increase in its GDP. This is supposed to be hard evidence that economic growth doesn’t help the poor. But GDP is a measure of “growth” that basically looks at the amount of spending that occurs in a country, and it includes government spending. It is Keynesian fallacy that economic growth comes from spending (it comes rather from saving and capital investment). Economic growth does’t come from currency going from one person’s pocket to another’s. And it certainly doesn’t come from government spending wealth it obtained by expropriating it through force from individuals who would have put it to other uses or by borrowing it into existence through the Federal Reserve system. It shouldn’t be surprising at all that GDP can go up and yet society’s standard of living remain the same. This isn’t evidence that economic growth doesn’t help the poor, but rather that GDP is an extraordinarily lousy measure for determining increase in society’s standard of living, the only sense in which discussion of “economic growth” is meaningful.

Krugman’s assertion that the poor do not benefit when economic growth occurs is completely asinine on its face. Not that many generations ago, even better off members of society had to go out and poop in a hole in the ground (some might have had fancier outhouses built around it than others). Only the very wealthiest has indoor plumbing. Yet today, even poor people have toilets. Or cell phones. You can take your pick of any countless number of ways to illustrate how the standard of living of society (that includes the poor, of course) is higher today than in the past. How? Did government redistribution of wealth put a toilet in every home or a cell phone in every hand? No. Economic growth did. When rich people profit by expanding productive capacity in order to produce ever better goods or services at ever lower prices, poor people are better off for it, too, since more and more of those goods and services that were once out of reach become affordable. Krugman thinks he can disprove this by pointing to some government data. Trouble is, data can’t disprove logic and common sense.

But there’s another point I want to make about Krugman’s frequent discussions on “wealth inequality”, which is how (as I’ve pointed out before), by turning this into a partisan issue and blaming Republicans for being uncaring about the poor for not agreeing to increasing taxes on Americans, he serves to distract attention away from the role of the government-legislated monopoly over the supply of currency and credit and its legalized counterfeiting operations that effect an upward transfer of wealth from the poor and middle class to the privileged members of the ruling class.

As I recently commented on my social media:

As David Stockman recently observed,

…Bernanke’s objective all along was to aggressively levitate the price of financial assets and thereby confer massive windfall gains on the wealthy who own most of them. And all this was done in pursuit of some whacked-out, latter-day Keynesian version of “trickle down” economics, which, according to Bubbles Ben, was for the good of the average American—even if they didn’t appreciate it, comprehend it, demand it, or vote for it….

The essence of honest free markets for debt, money, equity and everything else that is traded is that there are no bailouts, no moral hazards, no central bank “puts” and safety nets under the stock market, and therefore no unearned windfalls to gamblers and speculators. By contrast, the Greenspan-Bernanke-Yellen style of Keynesian central banking is all about dishonest markets where all prices in the money, debt and related securities markets are rigged, pegged, manipulated and medicated by 12 fallible people—nowadays mostly academic PhDs— who rotate thru the FOMC.ir?t=davistoccontc 20&l=as2&o=1&a=1586489127

Washington’s so-called rescue of the US economy after the financial crisis consisted of nothing more than a central bank enabled drawdown of the last available balance sheet—that of Uncle Sam.

Krugman serves the role, of course, of manufacturing consent for the continued legalized counterfeiting operations of the Fed, constantly arguing that the solution to our economic woes is to do more of the same that caused them in the first place by convincing people of the silly notion that wealth comes from a printing press.

It is absolutely ludicrous to argue that the same government that established the Federal Reserve and otherwise thrives on crony capitalism can at the same time be the solution for unjust wealth inequality by using force to engage in even more redistribution.

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About Jeremy R. Hammond

About Jeremy R. Hammond

I am an independent journalist, political analyst, publisher and editor of Foreign Policy Journal, book author, and writing coach.

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2 Comments

  1. philip.dennany

    The one and only way to deal with the inequity problem is to expand and enforce anti trust. When a small percentage of people are allowed to monopolize anything the masses become enslaved under the greed of the controllers

    Reply
    • Jeremy R. Hammond

      Surely you must agree, then, about the need to end the government-legislated monopoly over the supply of currency and credit and its legalized counterfeiting operations that effect an upward transfer of wealth from the poor and middle class to the privileged members of the ruling class.

      Reply

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