Krugman in Wonderland
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.
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.
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.
Professor William L. Anderson is an Austrian School economist and teaches at Frostburg State University in Maryland. He also writes the blog, Krugman-in-Wonderland which critiques Keynesian economics and Professor Krugman’s columns in the NY Times.