The Conscience of a Liberal by Paul Krugman
Page 1 of 2 | Page 2 of 2
Chapter 1: The Way We Were
In opening his call for new social welfare infrastructure in America, Krugman describes how he joined many Americans in protesting the country during one of its greatest times, the 1950s and 60s. Krugman does not discount the necessity and importance of the Civil Rights and anti-war protests, but in academically-developed hindsight, he illustrates that America transitioned from a pre World War II era of economic disparity to a post-war era of vast economic equality. Krugman contends that Roosevelt’s New Deal policies, coupled with unprecedented bipartisan cooperation throughout American governmental institutions, blessed the country with these pecuniary fortunes, thereby creating the middle class. After discussing America’s bounty during the 1950s and 60s, the author begins to develop his theory regarding its collapse: movement conservatism.
Krugman defines movement conservatism as a radical force that possessed the Republican Party with the drive to regenerate the pre World War II inequality in America by repealing the New Deal measures that created the middle class. The author asserts that movement conservatism’s seeds were planted in the 1960’s with Reagan’s governance of California and William F. Buckley. The seeds took root with Nixon, and then movement conservatism blossomed when Reagan entered the White House. While Bill Clinton wilted the conservative tree somewhat, Krugman hold’s that George W. Bush perfectly embodies movement conservatism’s ideologies and that movement conservatism blossomed fully with Bush’s re-election in 2004 when Bush attacked the New Deal at its fundamental base, Social Security.
Krugman not only explains the evolution of movement conservatism, but the 2008 Nobel Laureate in Economics engages in economic heresy by stating that economic trends do not establish the political order. To the contrary, Krugman states that the economic environment lags political developments. He lists four pieces of evidence to support his argument. First, the pre World War II economic inequality did not reemerge following the removal of wartime controls. Instead, New Deal prosperity reigned for thirty years in America. Second, the staying power of New Deal prosperity did not retreat until after movement conservatism had captured the political helm for over a decade. Third, economists have begun to understand that technological innovation was not the cause of the new economic inequality because even the most highly educated Americans have not realized appreciable financial gains unless they reside in the top one percent of the American population. Fourth, the rightward shift in politics and the resulting economic inequality is unprecedented among advanced countries. Krugman explains that the Democratic Party in America has remained steady since the time of Roosevelt. Instead, Republicans have shifted right significantly. Krugman supports this contention by analyzing how Clinton’s policies were often to the right of Nixon, while Bush’s policies far surpassed the conservatism of Gerald Ford.
Krugman closes the chapter with the idea that Americans have had enough of movement conservatism and its concomitant disparity in income. Krugman believes that America began the transition in 2006, when Democrats regained control of the House and Senate. However, he cautioned that one election does not make a trend. After the election of Barack Obama as president and the further strengthening of the Democratic position in the House and the Senate in 2008, Krugman appears politically perspicacious.
Chapter 1 left me with two questions, one rather conspiracy theorist and one legitimate. First,is it possible that George Bush, at the behest of movement conservatism, went to war in Iraq to preserve his post September 11th popularity and retain control of the White House for four more years? Next, how can middle class Americans who claim that they support the middle class embrace a party that wants to destroy the very policies that created the middle class?
“Chapter 2: The Long Gilded Age”
Chapter two opens with comparisons of Bush era inequality of income to that of pre New Deal America. In 2005, distribution of wealth to the top ten and one percent of Americans mirrors the average for the 1920’s. One must remember, however, that while distribution reflects the past, the standard of living has drastically increased thanks to the development of social programs.
Before expanding upon resemblances, Krugman breaks to name the era between the 1870’s and the 1930’s as the Long Gilded Age. This period is characterized by great economic inequality.
This chapter reveals a main theme of the text. Krugman argues that middle-class societies must be created via political persuasion. In other words, middle class societies are not the natural sequence of events of a developing society.
So why did Americans allow for such prolonged inequality? Why did they not demand a political structure which addressed their needs? Other countries had developed welfare states, and America had the knowledge and resources to make changes. To begin, voting rights were a privilege of the upper class and were not extended to all. Next, the Republican Party was dominant and had three times the funding to devote to campaigning, which essentially assured a spot in the White House. Additionally, election fraud was abundant. As one gentleman stated, it’s not the vote it’s who counts the vote.
Cultural and racial tensions split the nation. Americans were classified as rural or urban, immigrant or national, and by race. Such issues inhibited groups from joining together to overcome inequality. American’s needed a transformational leader to establish the middle class. Such divides are still prevalent today, but to a far lesser extent.
Further extenuating conservative dominance is the phenomena that popular opinion was accepted as fact. It was widely accepted that taxation was detrimental, attempts to alleviate poverty were wrong, and those who opposed pure capitalism were radicals.
Though Federal legislation rejected any movement towards a welfare nation, states began to take smaller steps. States began to develop workers compensation and age-based pension laws. However, such steps were slow and small and it took the Great Depression to unite the nation.
The topics of this chapter are an eerie reflection of today. Throughout the early 2000’s Americans willingly accepted the ideology of the conservative party. Many Americans simply refused the challenge the extravagant behaviors of the reigning party. I often wondered what it would take for Liberals to gain accreditation. It now appears, after the election of a Democratic president, that it required another great financial crisis.
Chapter 3: The Great Compression
After summarizing the history of the Long Gilded Age in Chapter 2, Krugman continues to develop his thesis that political changes have led economic changes throughout America’s history. Thus, Krugman discusses “The Great Compression,” a term first coined by the economic historians Claudia Goldin and Robert Margo. “The Great Compression” refers to the time between the 1920s and the 1950s when America’s economic inequality narrowed significantly. While Krugman relies on his earlier statements that New Deal bipartisanship contributed to “The Great Compression,” he becomes specifies some other reasons as well.
Krugman states that America’s wealthiest citizens exercised far less buying power than they did in the 1920s. The author attributes this decrease in buying power to one main factor: taxes. America’s wealthiest citizens relinquished up to ninety percent of their income to taxes by the 1960s. Interestingly, America’s economy did not collapse, and the wealthy did not substantially change their investing habits. For instance, Krugman illustrates that in the corporate sector, sixty-seven percent of pretax income was invested in labor and thirty-three percent was invested in capital in 1929. By 1955, those numbers remained essentially the same at sixty-nine percent for labor and thirty-one percent for capital.
At the same time that America’s wealthiest citizens were contributing more of their income to the country, America’s emerging middle class recognized an explosion in purchasing power. Members of the middle class earned higher wages, and they received greater social welfare benefits, either from work or from the government. Specifically, retirement benefits, health care benefits, and unemployment insurance programs solidified during the New Deal and became the expected way of life during the 1950s and 1960s. The middle class enjoyed these benefits do to the rise in unionized labor, increased employment and wages, and governmental bipartisanship previously mentioned.
Krugman illustrates that the decrease in economic inequality was apparent throughout America in the 1950s and 1960s. For example, Long Island’s Gold Coast transitioned from an environment dominated by mansions to an environment dominated by tract housing and charitable or social organizations. Furthermore, the ease and popularity of automobile ownership facilitated this neo-suburban lifestyle. (This following statement is not in this chapter; instead, I took Krugman’s arguments to the next logical step.) Finally, Eisenhower’s interstate highway system, another form of government spending by the way, aided the growing middle class by providing a means to use their new automobiles. As a result, the economy improved because corporations sent workers to new geographic locations with greater ease and decreased costs and tourist destinations blossomed due to the ease of taking family vacations.
More information raises more questions. If the wealthy will not invest their after tax earnings in the face of higher taxes, why did this not happen in the 1950s and 1960s? If taxes are bad for the economy, why did higher taxes help lead America out of an economic depression? Finally, is government spending not good if it creates jobs and serves as a source of labor competition for the private sector, which will increase wages and working conditions?
“Chapter 4: The Politics of the Welfare State”
In 1948, the fear of change named Harry Truman the 33rd President of the United States. Americans had watched a Republican controlled Congress diminish the progress of the New Deal, and feared the outcome of a Republican White House. Political progress was at a standstill throughout the Long Gilded Age, but an increasingly privileged lower-economic class embraced liberal ideals. By the early 1950’s, policies and programs associated with the New Deal were enduring and conventional.
Many factors contributed to a nation more inclined to endorse a welfare state. To begin, naturalized immigrants, usually Democrats gained the right to vote. The South, a place of explicit discrimination, also shaped the political landscape. Still demoralized by the loss of the Civil War, Southern Democrats could win via effectively campaigning against Lincoln. Additionally, the South stood to reap great benefits from the New Deal for the South was predominately poor. Potential gains associated with a welfare state swayed southern, whites to vote liberally. (Remember, the South still held deeply rooted beliefs on equality and abandoned ship as Democrats promoted civil rights. This explains why the Southern states are traditionally Red States.)
Unions also provided leverage for the Democratic Party. The Democratic Party is characterized as unorganized and the unions provided the structure the party needed. Unions also provided financing and willing supporters. They were also a means of informing blue-collar workers and influencing them to get out and vote.
So how were Republicans able to gain votes? Throughout the late 1950’s and the 1960’s it was difficult to distinguish between the economic policies of each party. Therefore, voter’s income played a smaller role in their decisions. Consequently, many low and middle income individuals voted for Republican candidates.
While I agree with Krugman’s statements on change, it is interesting to note that change was the motto for of recent President-elect Barack Obama.
Chapter 5: The Sixties: A Troubled Prosperity
Krugman captures the subject of this chapter with its title. Accordingly, Krugman dichotomizes America by juxtaposing America’s prosperity with America’s rising social and political tumult in the Sixties. Specifically, Krugman discusses the civil rights movement, the explosion of crime, the growing welfare rolls, the Sixties’ counter culture, and Vietnam.
Despite the social upheaval that occurred during the Sixties, middle class Americans continued to realize economic growth. In 1966, the federal minimum wage equaled approximately $8.00 per hour in today’s wages, which is twenty-two percent higher than today’s federal minimum wage at the time of this writing. Additionally, Americans enjoyed greater coverage under health care, unemployment, and disability insurance than they do today. However, movement conservatism and neoconservatism learned how to exploit the Sixties’ climbing social unrest.
Krugman explains that a good portion of the Sixties’ disquiet resulted from issues surrounding the civil rights movement, especially Johnson’s push for enactment of the Civil Rights Act and the Voting Rights Act. Krugman touches on the gross violence and the recalcitrant rejection of federal intervention with Jim Crow laws.
Urban disorder and rising crime became another factor that soiled the Sixties’ historical legacy. While crime rates are hard to predict, and later, to describe, Krugman illustrates that the African-American migration from the agricultural South to the urban North and West contributed to the urban unrest that struck during the Sixties. For instance, while African-Americans were moving into the inner cities in the Northeast and on the West Coast, American jobs were moving from the inner cities to the suburbs. Therefore, African-Americans did not enjoy the boon in economic prosperity that white Americans did. Furthermore, police brutality plagued cities across the country, but African-Americans did not fear authorities in cities outside the South like they did in the Southern cities. As such, African-Americans felt emboldened to act against social injustice. This, coupled with African-Americans’ frustrations with the ineffectiveness of peaceful demonstration to effect change, led to more violent behavior in the face of racial atrocities.
In regards to welfare rolls, Krugman states simply that this government program grew because people began feeling comfortable with its function and due to new civil rights laws, they were not negatively persuaded from pursuing this help. However, Krugman cautions that many facts and figures surrounding welfare were grossly exaggerated. For example, Krugman notes that AFDC (welfare) payments totaled $4.9 billion in federal spending while Social Security payments accounted for $39 billion in federal spending in 1970. While this chapter does not list these statistics, federal spending totaled $195.3 billion. This demonstrates that AFDC payments consumed only 2.5 percent of all federal payments.
For all the notoriety that hippies and Vietnam garnered, Krugman shows that these forces may not have had the impact that people attribute to them. In fact, Krugman states that one possible reason for the rise in the Sixties counter culture was the economic prosperity. In other words, the cost of experimenting with unemployment and social acceptance was low because jobs were plentiful. As the author demonstrates, the unemployment rate soared from 3.5 percent to 6 percent near the end of the hippie movement. Krugman highlights that a number of technological changes also contributed to the social change in the sixties, such as birth control and an entire generation that had watched television since birth.
Finally, Krugman debunks the myth that Vietnam killed the Democrats. For instance, Krugman shows that the Democratic composition of the House of Representatives and the Senate fluctuated, but ultimately grew from 1967-68 to 1975-76. As Krugman scribes throughout the chapter, and the book, movement conservatism killed the Democrats.
Krugman writes that the explosion of “intellectual” movement conservatism blossomed in the Fifties and began to mature in the Sixties with Reagan’s election as Governor of California. While this ties into the next chapter, Reagan captured the well-funded “scholarship” of conservative think-tanks, and he articulated in a message that the new conservative base could understand. Furthermore, with the Democrats alienated the South with civil rights legislation and the Republican Party courting them with alternative rhetoric, Democrats lost their faithful, southern constituency.
“Chapter 6: Movement Conservatism”
A young, brash, and media savvy group of well financed conservatives, headed by William Buckley, led movement conservatism. Among their objectives was the continued disenfranchisement of Blacks. They viewed this as acceptable, for Whites were the majority and therefore entitled. Their ideology was echoed in Buckley’s novel God and Man at Yale. Unlike Generalissimo Franco, the new conservatives needed to find a broad, popular base to take control of the Republican Party.
Goldwater proved to be a false glimmer of hope, but Reagan soon captured the spotlight. In 1964 Ronald Reagan delivered a speech later called “the most successful national debut.” Reagan’s rant filled the minds of listeners with unfounded claims and statistics. His antics appealed to the outlook of many.
Although a genuine threat, the fear of communism further aided movement conservatism. Many American’s felt that communism should be eliminated and not contained. Following the ideology of McCarthy, some viewed containment as an indicator of weakness. Movement Conservatism took advantage of rampant paranoia to attract followers.
The movement also caught the eye of the business sector, first attracting mid-sized business owners. Throughout the 30’s and 40’s organized labor greatly increased employee benefits, posing a substantial threat to mid-sized businesses. Big business could handle the increased costs and small businesses were not a target of unions. Movement Conservatism gained the support of such owners, and hoped to expand to regions not yet dominated by organized labor.
Increasing its scope, Movement Conservatism was also backed by neoconservatives. The Great Depression drove support for government involvement in economic affairs, but as the air cleared many reverted back to old conceptions. Respected Chicago economists, although perhaps dishonest, called for separation of government and economics. Additionally, sociologists spoke out against liberal ideology. Both groups were supported with generous financing, which later went to the development of conservative-minded organizations. These foundations only endorsed and printed material which met rigid conservative ideology.
Reagan’s advancement of the movement was later eclipsed by Richard Nixon. However, Nixon was a transitional leader leading the exploitation of Republican politics. Movement Conservatives disliked Nixon’s policies. However, the movement regained strength due to foreign affairs and perceived economic crisis.
Chapter 7: The Great Divergence
Krugman opens this chapter by focusing on a major debate among modern economists, which involves whether a majority of Americans have fared better financially since 1973, the year generally accepted as the point that the post WWII economic boom ended. Of course, Krugman recognizes the big picture surrounding this debate and that is that economists must entertain this debate at all. However, Krugman does not avoid the debate by arguing that by having the debate, Americans must suffer worse financially than they did in 1973. Instead, Krugman confronts the debate fully and fairly by discussing both sides of the controversy.
First, Krugman explains that complex issues of measurement surround the debate. He explains that while Americans enjoy greater prosperity on average, median income has deteriorated significantly. He accomplishes this through a “Bill Gates-in-a-bar” analogy. For instance, if Bill Gates walked into a bar, then the average wealth of the people in the bar would increase dramatically; however, the median income of the bar’s patrons would not fluctuate at all. Krugman argues that the bar represents an accurate microcosm of America financially, not because Americans are impecunious drunkards, but because only a small portion of the American population has benefited from an increase in income despite our steadily increasing level of production. In fact, median household income, adjusted for inflation, has grown by only sixteen percent from 1973 to 2005. Although Krugman does not numerically state the increase in the number of dual income households over this time, he argues that the increase in dual income households accounts for the sixteen percent rise in median household income. According to the U.S. Department of Labor, Krugman’s argument is valid. The Department of Labor’s website states that the number of dual income households had nearly doubled between 1980 and 2005. In an attempt to strip away the impact of dual income households on the rise in median household income, Krugman shows that the median wages of men aged thirty-five to forty-four have actually decreased by twelve percent. Considering that this is the demographic that typically would have supported a household in the early 1970s, it appears that Americans face tougher financial times now than they did in 1973, which of course signals growing financial inequality among Americans over the last three decades.
Returning to the Bill Gates-in-a-bar analogy, Krugman explains why average income has risen dramatically while median income has grown phlegmatically, if at all. Krugman illustrates that only the top one percent of American earners has realized greater economic gain since 1973 than it did during the postwar boom. Moving up the income scale, the top tenth of one percent of American earners has witnessed a fivefold increase in income, and the top one hundredth of one percent has realized a sevenfold increase in earnings. Therefore, the growth in the members of the super wealthy classes have driven the climb in Americans’ average income.
To demonstrate the reasons for this widening inequality, Krugman evaluates arguments offered by two groups of economists. One group states that growing international trade and immigration have depressed the wages of unskilled labor in the U.S. while technology has driven the demand and compensatory rewards for skilled, educated workers. Krugman certainly acknowledges that immigration of unskilled labor into a market will depress the wages of that market’s indigenous labor force; however, he demonstrates that the rise in immigration has not warranted such a dramatic decrease in unskilled wages across the board. Similarly, Krugman asserts that imports have not been of the scale to explain such an effect. In fact, the economists that posit this argument admit that this is the case because they use technology to fill the gaps that are unsupported by immigration and imports. As a matter of fact, technology has become a religion to these economists in the way that societies throughout history have referenced God when no other cause manifested to describe an otherwise unknown occurrence. Since technological advances demand highly skilled workers, these economists contend, then these skills dictate higher salaries. Krugman disposes of this argument as well by comparing CEOs and schoolteachers. Both may hold master’s degrees, yet schoolteachers have benefited from modest gains in income while CEOs have enjoyed salary increases from thirty times that of the average worker in 1970 to over three hundred times that amount today. As such, Krugman attributes the expanding American income inequality to changing institutions and norms.
As discussed in previous chapters, unionized workplaces have diminished dramatically since the 1970s. Unions advocated for wages that increased with productivity as well as health and retirement benefits. Since the decline of unionized workplaces, wages have not continued to keep pace with productivity. To illustrate, Krugman compares GM in 1969 to Wal-Mart today. In 1969, GM production workers earned the equivalent to a little more than $40,000 per year in today’s money. In contrast, Wal-Mart’s non-supervisory employees receive about $18,000 per year. Additionally, Wal-Mart’s employees do not experience the same non-wage benefits that GM employees did in 1969 despite an institution such as Wal-Mart, with no foreign competition, being a better candidate for unionized labor than a manufacturer such as GM. Finally, unions and political and social institutions no longer stigmatize the Brobdingnagian compensation packages lavished upon CEOs. As such, CEO salaries have increased at the expense of many corporate constituencies, including employees and corporate shareholders. Furthermore, this increase in CEO compensation has not been accompanied by an increase in CEO productivity. Instead, the market has accepted extraordinary CEO compensation as a positive signal that the company is paying to recruit and retain superior executive talent, and the market punishes the stock of companies who do not comply with this new paradigm.
Can shareholder activism fill the void of unions and refocus attention on undeserved CEO compensation? Will clawback provisions offer an effective mechanism to align the interests of CEOs with the interests of the shareholders they supposedly serve?
One transcendental theme of Krugman’s book is how income inequality has increased over the last thirty-five years. Krugman offers the decline of unionized labor as a reason for this. In this chapter, Krugman states that rising CEO pay and celebrity pay has contributed to this inequality as well. Interestingly, and I did not see this in Krugman’s discussion, celebrities have relied on unions to increase their pay over the years, e.g. Additionally, even corporate leaders are somewhat united in compensation practices, e.g. If celebrities and corporate directors should be allowed to unite, why should the average American worker be denied the same freedom?
Continue on to Page 2 of 2
This is a Summary from Wikisummaries available under GNU Free Documentation License 1.2