Blackadder’s Lair

The home of many a cunning plan

Krugman on Equality

Since his Nobel prize was announced last week, I have been (re)reading some of Paul Krugman’s old columns for Slate magazine. I find the columns to be thoroughly engrossing, which is to say not that I think everything Krugman says in them is right, but that even where he is wrong he is wrong in an interesting way or for interesting reasons.

Case in point: in a column entitled The CPI and the Rat Race, Krugman argues that it is inequality, rather than poverty, that is the more important social problem. Krugman begins the column by conceding (as he must) that, materially speaking, life has gotten a lot better for Americans over recent decades:

In 1950 some 35 percent of dwellings lacked full indoor plumbing. Many families still did not have telephones or cars. And of course very few people had televisions. A modern American family at the 12th percentile (that is, right at the poverty line) surely has a flushing toilet, a working shower, and a telephone with direct-dial long-distance service; probably has a color television; and may well even have a car. Take into account improvements in the quality of many other products, and it does not seem at all absurd to say that the material standard of living of that poverty-level family in 1996 is as good as or better than that of the median family in 1950.

Nonetheless, Krugman says, it would be wrong to conclude that life is better for the average American in 1996 than it was in 1950, as what people really care about is not their absolute standard of living but rather their relative standard. To justify this claim, Krugman offers up the following sci-fi inspired hypothetical:

Imagine that a mad scientist went back to 1950 and offered to transport the median family to the wondrous world of the 1990s, and to place them at, say, the 25th percentile level. The 25th percentile of 1996 is a clear material improvement over the median of 1950. Would they accept his offer? Almost surely not–because in 1950 they were middle class, while in 1996 they would be poor, even if they lived better in material terms. People don’t just care about their absolute material level–they care about their level compared with others’.

Now there aren’t actually any mad scientists with time machines running around (that I know of), so there’s no way to directly test Krugman’s hypothesis here. But there is a rather close approximation to the scenario he outlines that does obtain in the real world. It may not be feasible to transport a person from the year 1950 to the year 1996 (or 2008), but you can transport them from one country to another. And there are plenty of countries in the world whose material conditions now are comparable to those of the U.S. in 1950. If Krugman is right, then individuals in those countries should not be willing to move to the United States, because while this would improve their absolute material condition, their condition relative to their society would dramatically decrease. In fact, what we ought to see is people from the United States clamoring to get into these poorer countries, as by so doing they could greatly increase their relative material condition.

This is, needless to say, not what we actually observe with regard to immigration. The fact that so many people are willing to risk their lives to become poorer (relatively speaking) by coming to the United States suggests that perhaps one’s absolute material condition does matter to people more than Krugman suggests.

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October 20, 2008 - Posted by | Economics, Equality, Poverty

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