Krugman’s blog, 6/8/15

There were two posts yesterday.  The first was “Musings on Inequality and Growth:”

I’ve been using the case of research on inequality and growth as an example of an issue where liberals need to be careful not to let wishful thinking drive their conclusions; it would fit perfectly with our world view if inequality were not just a bad thing but also bad for the economy, which is a reason to bend over backwards to avoid accepting that conclusion too easily. But what do we really know?

Well, there have been a number of studies that seem to find a negative relationship, all based on some kind of international cross-section approach (some with time-series aspects too). So what is my problem? In general, I have doubts about the whole growth regression methodology, which has lots of problems in identifying causation (remember, that’s the methodology behind the Reinhart-Rogoff debt-threshold paper). Beyond that, there just isn’t a striking, simple relationship between inequality and growth; all the results depend on doing fairly elaborate data massaging, which might be right but might also be teasing out a relationship that isn’t really there.

Let me give you a picture showing what I think we know. It compares inequality with growth; I’ve made some data choices that others may wish to do differently, so let me explain those details. First, instead of raw Ginis I use the new Gornick-Milanovic numbers for households without members over 60. Second, I measure growth in real GDP per working-age adult (15-64), because raw GDP per capita is significantly affected by demographic divergence. Third, I look at the period 1985-2007 — essentially, the Great Moderation — because I’m not talking about macroeconomic policy. Oh, and finally I exclude both transition economies (which went from Communist to very poor capitalist circa 1990, and have very different stories) and Ireland, which grew so fast that it’s hard to see anything else.

Here’s what I get:

Growth in GDP per working-age adult, 1985-2007
Growth in GDP per working-age adult, 1985-2007 OECD, LIS

If you squint, maybe you see a very slight negative relationship here (R-squared of 0.02, if you care), but it’s not much. Basically, there isn’t much difference in growth rates overall; the low-inequality northern Europeans have a range of outcomes not noticeably different from the high-inequality Anglo-Saxons.

I might also note that low inequality is no protection against financial crisis — the Nordics had some major ones in the early 1990s. Also Denmark and the Netherlands have very high levels of household debt.

It’s important to realize that the absence of any clear relationship is a big win for progressives: right-wingers always claim that any attempt to reduce inequality will hurt the feelings of job creators and kill growth, but there’s not a hint of that problem in the data. But not much evidence that failure to reduce inequality kills growth, either. And I personally am making an effort not to be greedy — not to claim that a drive against inequality, which I view as crucially important for social and political reasons, is also the cure for lots of other things.

Yesterday’s second post was “I Do Not Think That Derp Means What You Think It Means:”

Continuing on the theme of derp in policy discourse: Vox coincidentally has a post about Hillary Clinton’s proposal for automatic voter registration noting that signing up less informed voters isn’t necessarily a bad thing, because “informed” voters mainly seem to be informed about the party line. In effect, they know which derp they’re supposed to repeat.

Indeed, regular viewers of Fox are worse at answering simple questions about reality than people who watch no news at all.

Meanwhile, however, I’m getting a lot of people saying “Oh yeah? You do derp more than anyone!”

No, I don’t. You may believe that I am evil or stupid, or evil andstupid. But derp means something specific: it means always saying the same thing, regardless of circumstances, and regardless of past errors. Declaring that the Fed’s policies are going to cause hyperinflation, year after year, when it keeps not happening is derp. Declaring that we need aggressive fiscal and monetary expansion when the economy is depressed isn’t. It’s not an invariant claim — in fact, I get accused (stupidly) of some kind of inconsistency because I thought deficits were bad under Bush but good under Obama. And it’s not a prediction that has repeatedly proved false.

What the accusers really mean here is that I keep saying things they dislike and dispute. But that’s not derp, that’s just disagreement. There’s a difference, and only the derpy fail to grasp that difference.



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