June 13, 2012
The Depression and The Divergence: Paul Krugman and Timothy Noah on the Economy
by Felix Salmon
Published: June 12, 2012
Rich people have more power than poor people, and they use that power to get what they want — which is, normally, more wealth and more power. Across America, politicians invariably reflect the views of their richest constituents. And the Federal Reserve, too, appears to have been captured by the rich: It seems much more worried about the specter of possible future inflation (which might be bad for the rich) than it is about the tragedy of present-day unemployment (which is calamitous for today’s jobless).
Right now, it turns out, is a great time to be rich — quite possibly the best time ever. Over the course of what both Paul Krugman and Timothy Noah call the “Great Divergence” (Mr. Noah took that title for his book from a phrase used by Mr. Krugman in “The Conscience of a Liberal”), the top 1 percent doubled its share of national income. The happy one in a hundred had 12 percent of all income in 1984; that had risen to 24 percent in 2007.
As a result, the very title of Mr. Krugman’s new book, “End This Depression Now!,” is going to ring a little false to his wealthiest readers. What depression? Sure, a lot of rich people lost a lot of money when the stock market crashed at the end of 2008 and the beginning of 2009. But then the government and the Federal Reserve stepped in, did what needed to be done, the markets turned around, and the economy started growing again. We’re now in a recovery, not a depression.
Each of these books, in its own way, is an attempt to disabuse the rich of precisely that idea — to explain that while they’re doing perfectly well for themselves, an overwhelming majority of the population, the bottom 80 percent to 90 percent of the country, is struggling hard and has tasted none of the fruits that have been showered on the wealthy.
Take the quarter-century from 1980 to 2005, during which markets soared and America got indisputably richer: over that period, Mr. Noah, a columnist for The New Republic, says that fully 80 percent of the nation’s income gains went to just the top 1 percent. Most Americans’ incomes stagnated, with the middle class getting nowhere.
Mr. Krugman takes a shorter view, and demonstrates that the same group suffered dreadfully in the financial crisis, and that its plight continues today. Both of them try to inject urgency back into the national debate, spelling out how unacceptable the status quo is, and calling on the government to do something about it as a matter of the highest priority.
Their pleas will fall on deaf ears, as long as the rich remain well fed and in charge of the levers of power in Washington. That’s a matter of simple political reality. But that just makes it all the more important for these books to be compelling reads in their own right. And sadly, neither author is at his best working at book length.
Mr. Krugman, the Nobel laureate and Princeton professor whose New York Times column and blog have made him arguably the most important and influential Op-Ed columnist in the nation, writes daily with fluency and fervor about the greatest issues facing the world.
But give him a book to fill, and he starts becoming a bit repetitive: Reading this one is like listening to a Wagner opera in which the lead character first tells you what he’s going to say, and then he says it, and then he tells you what he just said.
What’s more, the real heart of “End This Depression” is distressingly thin. There are 13 chapters, plus an introduction and a postscript, and just one — Chapter 12 — attempts to deliver on the promise of the title and explain what Mr. Krugman would have the government actually do to improve our collective lot. And that chapter is pretty short.
There are precious few detailed policy proposals here, and it would be extremely difficult to put a price tag on what Mr. Krugman wants. A lot of it is more attitude than money, in any case: the idea, for instance, that Ben Bernanke needs to demonstrate “Rooseveltian resolve” in his quest to get the country moving.
Would Mr. Krugman’s vague prescription — which boils down, at heart, to old-fashioned Keynesian stimulus — really end this depression? Are we even in a depression? We’re certainly suffering the aftermath of a particularly nasty financial crisis, and more government spending would surely help, at the margin.
But without knowing how much money Mr. Krugman proposes to spend, it’s hard to judge what he’s proposing. And he chooses to sidestep the idea, put forward most famously by the economic historians Carmen Reinhart and Kenneth Rogoff, that a recession of this magnitude was inevitable after a major financial crisis, and that there’s very little any government could have done to prevent it.
Instead, we get yet another potted history of how we got into this mess in the first place, and a pretty large dose of politics. Mr. Krugman loves to explain why he thinks that Republicans are worse than wrong: They believe in a “dogma,” he writes, that is “basically absurd.” This is good for point scoring, but it does nothing to help the reader follow a clear argument.
Mr. Noah’s book was born out of a wonderful project at Slate, which I highly recommend. And it opens with a terrific chapter, full of eye-opening data points and some very smart history. I had no idea, for instance, that in 1942 Franklin Roosevelt proposed a 100 percent marginal tax rate on incomes that were the equivalent of about $345,000 today: “F.D.R. wanted to bookend the minimum wage he’d created a decade earlier with a new maximum wage,” Mr. Noah writes. “Congress didn’t let him, but the idea won popular support.”
But “The Great Divergence,” like Mr. Krugman’s volume, is written by someone who works best at shorter length. And they share another problem: There’s no real story being told here. Mr. Noah (left) never delivers on the promise of that first chapter, and instead has a tendency to get bogged down in long recitations of history.
In a book about the rise of income inequality since 1979, we don’t really need eight pages on the history of immigration in the United States, or four full pages about the 1947 Taft-Hartley Act. Especially when the ultimate point being made is that neither turned out to be very important in terms of rising inequality.
At the beginning of his book, Mr. Noah expresses “an enormous sense of urgency about the way this country is changing and our need to get it back on the right track”; Mr. Krugman surely feels the same way. But by the time he has reached the end, Mr. Noah, like Mr. Krugman, winds up with a chapter of prescriptions that seem wholly inadequate.
Yes, we should raise taxes on the rich by $30 billion a year, open our borders to skilled immigrants and even repeal Taft-Hartley.
But none of those moves, individually or in combination, would make a real dent in the extreme inequality that we’re living with today. This is now a country run by the rich, for the rich. And nothing in either of these books gives me reason to believe that there’s any hope of changing that.
Felix Salmon is the finance blogger at Reuters.
A version of this review appeared in print on June 13, 2012, on page C7 of the New York edition with the headline: Speaking to the Haves, In a Plea to Consider All The Have-Nots.