Consciencebound

The Conscience of a Liberal by Paul  Krugman

I will be blogging my way through this book as I read it. This is part 1.

A friend of mine who voted for Barack Obama ( I did not) gave me this book to read that espouses the economic policies of some of the current democratic party.  I try to be open to different opinions that I do not agree with and so i am happy to read this book.  This is also an exercise for me to practice what I preach.  I push people to question their beliefs on a regular basis on this blog.  Now I get to see how honest I am in questioning a long held belief of mine in smaller government and lower taxes.  My hope is that I can take a serious look at my reasons for thinking what I do about how government should operate and have a thoughtful discussion with the person who gave me the book.  

Chapter 1

The Way We Were

The biggest thing that hits me in this first chapter is that Krugman has a few premises that are clear he will be working from as he moves on in this book:

1. Economic inequality is a moral problem.

2. It is the responsibility of government to correct this problem.

3. Republican (conservative) policy causes economic inequality.

4. Democratic policies(the New Deal) decrease economic inequality.

My initial response is that economic inequality is not a morally bad thing at all.  It can be an unfortunate thing but it is a necessary thing. It is necessary because human beings are all different with different talents and abilities and different desires. Some do not have big financial goals and others do. If you have ever worked side by side with a person who did not work as hard as you did and was lazy and didn’t show up to work on time or complete projects properly you would have most likely had the feeling that this person did not DESERVE to make as much as you did. Especially if you were working overtime and they were only doing the bare minimum. If this person was paid exactly the same as you and yet produced far less than you did, you would have a natural feeling of unfairness.

The person who is more educated, is more driven, is more focused on their goal and makes better decisions WILL MAKE MORE MONEY than the other person who is less educated, less driven, less focused on their goal (or has no goals) and makes poor decisions. The nature of the work done will generate more or less money and I don’t see that an inherently good or bad. It just is. Some people may choose to work longer hours or have multiple jobs just to get ahead and that is their prerogative.

It seems that Krugman and others like him think that it is not fair that some people are ABLE to make more than other people and that because of the inability of the poor to better themselves, the government should level the playing field for them. I may be misunderstanding him and that is why I would like to read more of this book and others like it but it seems that he is looking at this situation as if money is distributed to each individual regardless of merit and that we should strive to have an equal(or more equal) distribution of money to all people regardless of their abilities.

From what I do understand from Krugman and about the school of economic thought that he is espousing(Keynesian Economics), he is not talking about a totally controlled economy which we might call socialism. Many of the critics of Kruegman (and Obama) say that they are socialists and that they are trying to take away our freedoms and give us more government control over our economy and our lives. Tune into Fox News any given day and you will hear this sort of thing over and over again like a mantra. But as I understand it, Kaynes was actually trying to save capitalism FROM socialism. He felt that the private sector could not be fully trusted and that to keep things most stable (and thriving) there must be some government controls to keep things in check. So Krugman is not advocating a completely equal distribution of wealth which would be totally controlled by the government, rather he is advocating a hybrid of free market capitalism and government regulation and social programs. He is also looking at things from more of a macro level and dealing with whole economic classes of people and not individuals per se.

So in practice, Krugman is not wanting to take money from one person and give it to another as much as he is looking to put some limitations on what a person could earn at the higher levels. He wants the rich to be “less rich” and the poor to be “less poor” in general as I understand him. This would mean, of course, taxing the rich at a much higher rate to be able to pay for social programs that will help the poor. He wants a middle class to be much bigger thus giving more economic “equality” on a broad scale.

As I started to read this book I quickly realized how little I know about the economic history of the 20th century(as well as most centuries before that when it comes down to it). Economics is a very complicated and nuanced field of study and it is often difficult to link economic causes and effects. This makes proving one theory over another a very difficult thing to do. Krugman points out various political polices and their economic effects in the 20th century.  He feels that in post WW2 America, there was a much greater degree of economic equality than there was before the war.  He feels that this was due to the New Deal policies that FDR put in place and that without those policies there would not be much of a middle class at all. He also argued that the Republican policies of the Reagan era significantly hurt the middle class and made it shrink from it’s earlier size. He argues that Republican polices, in general, favor the rich at the expense of the poor.

This is where I need to do some more reading. I found that I was unable to confirm or deny Krugman’s points historically and I feel that he will only be building on these premises throughout the book. While I tend to disagree in general with government regulation in business, I see that Republicans are by no means a “free market” party. They may be slightly less controlled than democrats but in practice they have enlarged the size of government quite a bit themselves.

This is an interesting time to be reading this book. The ideas that Krugman talks about are what the Obama administration is living out in practice. In time we will soon see how well these policies work. As I pointed out in this post time will tell. I have had strong opinions on this subject for some time but they are primarily based on my personal experience in business and not on having a good understanding of the economy at large. Like any other opinion of mine, I am more than willing to be proven wrong and in some sense I hope that I am proven wrong. I hope that our economy does improve and that less people are subject to living in poverty. I am very interested to continue reading this book and to also continue to supplement my understanding of economics as a whole.

Some core ideas that I hold which I think are threatened by Krugman’s policies are the following:

- Allowing people to enjoy the fruits of their labor(even if the fruits are billions of dollars) is an incentive to take risks, create companies, create jobs and produce better work.

- Taxing people who are “rich” will either cause them to not work as hard, thus creating less wealth and also potentially less jobs, or it will cause them to try to circumvent the taxes by either taking their company to a different state or country or by using more “creative” accounting and tax preparation.

- By forcing “fairness” of economic distribution, you have to “unfairly” take money from the rich. My gut feeling is that rich people should be able to keep their money or give away as they see fit since they earned it. We do not have the right to take it from them and give it to others in the form of social programs.

I will be rethinking these ideas as I consider Krugman’s thesis in this book.

More to come…

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