Questions for Krugman

Conchis: there are a couple ways to respond to that, I suppose. First, assuming that increased security can be bought only by sacrificing something else (which seems reasonable), I worry that Krugman's policies would simply reverse the progress of the past 25 years--buying increased security by giving up wealth, or the capacity to generate wealth. Then the argument that we're better off having made the trade implies that we don't want to reverse it by implementing Krugman's plan.

Second, an increase in welfare mitigates the need for that kind of security. If your average earnings are greater, you can provide security for yourself through savings, smoothing out your earnings over your lifespan. Krugman's safety net policies make that sort of averaging harder, and thus reduce the benefits that increased wealth brings. For instance, I'm right now a college student. I don't make very much money. But in ten years, when I finish college and grad school &c;, I expect to make a fair amount of money--not piles and piles, but a perfectly decent salary. Logically, I wouldn't worry too much about saving for the future now--I don't make enough to make it worth it. I'd consume now, then start saving when I get my high end graduate salary. Social security prevents this; I have to pay in 7.5% of my wages, or whatever it is, now, and the same 7.5% (or less, if I make enough money) when I'm older and richer. Now, for me this winds up being a little silly--I'd rather spend more now and save more later--but for someone in a more precarious financial situation, having trouble paying his way through college, it's downright disastrous. So a universal safety net ends many of the benefits of our increased wealth, by preventing us from taking advantage of our greater overall prosperity.

As I see it, there are two major threats to workers in the U.S.

1. Technology
2. Foreign Workers

Over the last 25 years, low skilled workers have lost the most jobs to these two factors. Robots, Microsoft Office, the internets, etc., have taken jobs that people could earn fairly decent wages performing. And companies have moved entire factories to countries where a few bucks an hour is a good wage.

Over the next 25 years, highly educated, high paid workers in America are going to be subjected to these same factors. Take one high paid field, medicine. India has a small but growing medical economy servicing Americans who can get surgery cheaper there even after paying for travel expenses. And automated surgeons are already in the prototype stage (the U.S. Army has funded research in this field for a while now for battlefield medical care).

The only workers in America who don't have to worry about these two threats are politicians and the various leeches who suck a living out of the process of shaping the bloated federal budget. Explains a lot, I think...

Jadagul,

Sure, but Krugman's point isn't that we need social security more now because we're worse-off-all-things-considered than we were before. It's that we need social security more now because we're less secure. So Will's question just doesn't seem to speak to Krugman's point (or at the very least doesn't do so directly). Perhaps it wasn't intended to, but it sure had the ring of someone touting a great big "gotcha!"

To put it another way, assume we are better-off-all-things-considered in 2005 than before. How does it follow that we don't need social security more?

Conchis: Krugman is asserting that things have gotten worse, at least in some respects, since 1980 ("Over the past 25 years the lives of working Americans have become ever less secure"). I assume the point of Will's question is something along the lines of, "Do we really think a typical worker in 1980 was better off than the same worker would be now?" If the answer is no, then either job security is just as good or better now, or whatever we've gained by giving up the security is worth the trade.

At least, that's what I'm getting out of the questions. Feel free to slap me down if I'm wrong.

"(1) Would a rational person behind a veil of ignorance who knows all the relevant economic statistics for 2005 and 1980 choose to be a randomly selected worker in 1980 or in 2005?"

Um, I'm not entirely sure of the relevance of this question. (I am, however, sure of the irrelevance of (2) and (3).) Greater demand for social insurance isn't necessarily predicated on being worse-all-things-considered in 2005 than in 1980. It's predicated on being less secure. Am I alone in not thinking these are co-extensive?

I don't think you can assume the "wealthy" and the "middle class" are just two people.

Here is the CBO's 2004 numbers on the $1.2 trillion:

Social Security $492 billion
Medicare $297
Medicaid $176
Income Support $191
Federal & Military Retirement & Disability $135
Student Loans & Stuff $56
Extra SS & such -$110

Total $1.237 trillion

Interest on debt $322 billion
Defense $513 billion
Other discretionary $394

2004 Federal Budget $2.466 trillion

2004 Defecit not including SS surplus $567 billion

Yow!

I doubt the bottom 5th of households in 1980 are the same households in 2005. That group is usually young, and young people don't generally stay that way for 25 years.

I didn't say that spending on *poor* households was the problem. I used the figures for *all* HR spending (1.296 trillion). Assuming your figure is accurate, and knowing that the wealthy foot most of the tax bill, then most of that social spending is a transfer from the wealthy back to themselves and/or to the middle class. So I'm back to my original question: if it ain't helping the poor, what the heck is it for? (Oh, how proud would Johnny Cochran be, eh?)

Eric, what does the median family income have to do with the least well off? The bottom 5th of U.S. households saw zero, that's zero, income growth between 1980 and 2002.

The poorest 20% of U.S. families had a total income from all sources, including government aid, of $345 billion in 2004. They aren't what's causing the federal budget to rise out of control.

(1) Would a rational person behind a veil of ignorance who knows all the relevant economic statistics for 2005 and 1980 choose to be a randomly selected worker in 1980 or in 2005?

Depends on what you mean by "worker". If you mean industrial worker, 1980 would be better.

(2) Do labor market and income volatility have anything important to do with "economic security?"

Yes.

(3) If all there is to economic security is a state "guarantee," why haven't people in socialist economies been more economically secure?

If all there is to headache mitigation is taking two asprin, why does taking two hundred kill you?

Good points, Will. Krugman's either ignorant or dishonest.

The share of income is irrelevant, unless we are concerned about envy. The absolute income is important when relating how the least-well-off are faring now vs. then. According to the Statistical Abstract, the median household income (chained) went from $36,608 in 1980 to $42,409 in 2002 (the latest year in the latest SA). That's about a 16% increase in real income, and that's median, not average. Meanwhile, most commodities (including gasoline) cost less in real terms than they did then, and a larger percentage of the population owns securities and real assets (like their houses) where Paul and the monkypeople would have us believe that fewer do so (on average, how many 401(k)'s "vanish"?).

Even if Paul's analysis is true, shouldn't someone be asking where all of the increased federal spending on social programs is going, and whether or not the federal spending is wasted or even to blame if things are getting worse rather than better? I mean, a 131% real increase in Human Resource spending seems like a lot, doesn't it? (In 2002 dollars, from 560 billion in 1980 to 1,296 billion in 2004, an average of 2% per year faster increase than defense spending over that period)

I echo monkyboys sentiments exactly. Krugman rocks!! This is a boom and bust economy. First in the stockmarket, and now in the housing market. The dollar is devalued, the trade and budget deficit are astronomical. Bush is a big dufus. I live at the beach in Santa Monica and I see the very rich with million dollar townhomes and loads of misfortunates with nothing more than a backpack who dig in the trash for something to eat. What kind of bullshit society is this. I'm moving to Canada as soon as my rich mother dies.

The share of income going to the poorest 20% of American families fell 28% between 1980 and now.

The share of income going to the welthiest 20% of American families increased 13% between 1980 and now. This group is the only group that saw its share of the pie grow.

The wealthiest 1% of American families increased their share 44% between 1980 and now.

America as a whole is richer now than in 1980, but that increase in wealth has gone almost entirely to the rich.

Considering everyone is working more hours in a year now than in 1980, unless a worker thought they would be lucky enough to be in the top 20%, they would wisely choose 1980 to work in...

Good arguments. If you look at the numbers they, don't even support Krugman's argument anyway. Unemployment, both as a basic rate, and long term, have been going down, not up over the last 25 years. Krugman will manipulate any argument to support his idea that Bush is destroying the economy. I have more on this at my blog if you are interested.

What's interesting is that workers in the United States more often believe their jobs are secure than do Western Europeans, who would seem to have much stronger job security at first glance (after all, unions are still powerful and labor market restrictions are tighter in W Europe). You can find the information at http://www.gallup-international.com/

In 2003, 80 percent of workers in the United States said their jobs were safe. Almost no Western European country matches this. And Western Europeans also believe that they will have more difficulty finding a new job than Americans. So are stronger labor market restrictions and union protection the answer to job insecurity? Perhaps not.

But this doesn't necessarily speak to income volatility or access to health care.