Earlier this week Paul Krugman took another step closer to conceding that the case against income inequality is mistaken. He said, “I’m actually a skeptic on the inequality-is-bad-for-performance proposition. … [I’m] worried that the evidence for some popular stories is weaker than I’d like.”
Krugman laid some of the groundwork for his growing concession in his review of Piketty’s Capital in the Twenty-First Century where Krugman voiced cautious skepticism for Piketty’s core thesis—that increased cronyism was driving the income growth of the 1%. Krugman complained:
“…there is one thing that slightly detracts from [Piketty’s] achievement [in Capital in the Twenty-First Century]—a sort of intellectual sleight of hand. … [The] rise [of America’s 1%] has happened for reasons that lie beyond the scope of Piketty’s grand thesis [i.e. the growing accumulation of capital]. … What we have seen in America…is something “radically new”—the rise of “supersalaries.” Now, to be fair, [Piketty] …advances a possible economic analysis of changing norms, arguing that falling tax rates for the rich have in effect emboldened the earnings elite….[to] behave differently [i.e. to exploit cronyism despite prior social norms to the contrary]. There’s a lot to be said for this diagnosis, but it clearly lacks the rigor and universality of Piketty’s analysis of the distribution of and returns to wealth.”
“Also, I don’t think Capital in the Twenty-First Century adequately answers the most telling criticism of the executive power hypothesis: the concentration of very high incomes in finance, where performance actually can…be evaluated. … Their rise can’t be attributed solely to power relations.”
“Overall, I’m more or less persuaded by Piketty’s explanation of the surge in wage inequality. … But as I said, his analysis here lacks the rigor of his capital analysis.”