Paul Krugman demonstrates a laughable misunderstanding of economics in his blog post “Having It and Flaunting It” yesterday. He mistakenly claims “status competition…is a zero-sum game … where a lot of our economic growth has simply been wasted, doing nothing but accelerating the pace of the upper-income rat race.”
The drive for status and the rat race it accelerates is not zero sum. Quite the contrary, it produces risk-taking, investment, and innovation. Would we rather our most talented workers work less and vacation more like they do in Europe, or solve interesting puzzles, like chess, that don’t benefit customers? Surely not. We all benefit when mankind’s talent works hard to solve problems valued by others.
Krugman claims a large share of the gains since 1980 have gone to people with very high incomes. That may be true, but he ignores the fact that U.S. employment grew more than twice as fast as France and Germany’s and more than three times faster than Japan’s since then. Perhaps working class wages would have grown faster if the supply of labor had been more restricted like it is in Japan and has been in Europe. But he might want to ask the 37 million U.S. adult immigrants, their 16 million adult children and the young children of those 53 million adults as well as the millions of offshore workers working on behalf of the U.S. economy whether they would have preferred the slower growth of Europe and Japan. Fat chance.
This post also appears on AEIdeas, the public policy blog of the American Enterprise Institute.