Paul Krugman Still An Idiot

Krugman on Bill Moyers

Sigh, another ‘us vs. them’ article to incite class warfare. Let’s look at the facts. While some CEOs do make 100x the average worker, these are extreme outliers; the average CEO pay for a small business is only $200-400k, or about 5-10% of the most extreme pay.

From http://chiefexecutive.net/how-much-does-the-average-ceo-really-earn

In 2011, the median private company CEO in our survey earned a total compensation package of $362,900. That is just 3.8 percent of the number reported as “typical” in the Associated Press study. For private companies with at least $1 billion in revenue, the median CEO compensation package totaled just under $1.7 million, which is still less than 18 percent of the AP figure.

No one is denying inequality exists. But there is no consensus among economists that inequality must lead to crisis.

From the NBER http://www.nber.org/papers/w17896

Data from 14 advanced countries between 1920 and 2000 suggest these are not general relationships. Credit booms heighten the probability of a banking crisis, but we find no evidence that a rise in top income shares leads to credit booms. Instead, low interest rates and economic expansions are the only two robust determinants of credit booms in our data set. Anecdotal evidence from US experience in the 1920s and in the years up to 2007 and from other countries does not support the inequality, credit, crisis nexus. Rather, it points back to a familiar boom-bust pattern of declines in interest rates, strong growth, rising credit, asset price booms and crises.

Krugman mentions that only old people on the Forbes 400 created their wealth. I suppose that includes the the founders of Facebook, Amazon, Whatsapp, Instagram, Google, Oracle, Microsoft, Cisco…a lot of octogenarians there. Same for those Russian oligarchs that made their wealth under Stalin’s capitalist friendly regime lol. Kugman got a his Nobel on something called ‘new trade theory’. It’s probably the only subject he can discuss at any length without sounding like an idiot.

Also rate of growth of capital isn’t homogeneous. A booming business like Walmart in the 70′s or Microsoft in the 80′s will have a high growth rate of capital but eventually it slows down to the overall growth of the economy, by virtue of the law of large numbers and diminishing returns to scale. Some businesses become stagnant, like home builders in the late 2000′s. So while the Walton family will get richer, they cannot become richer at a rate much faster than the economy unless Walmart expands its business by opening more stores or branching out into different areas of commerce, or Walmart gets more business attributable to a change in consumer preferences.