Friday, June 14, 2013

Paul Krugman Asks A Critical Question About The Survival Of The Middle Class And A Democratic Society

Most economists are comfortable talking about the Luddites whose jobs were lost with the introduction of technology into the textile industry.  The poor Luddites were temporarily harmed but the industrial revolution expanded the economy and created new jobs for everyone.  Productivity improved along with the standard of living for workers.  Paul Krugman has finally left the reservation.  He no longer believes that the Luddite story applies to today's economy.  New technologies will increasingly replace highly skilled workers with college degrees.  Increasing the number of workers with college degrees cannot be the solution to that problem.  Moreover, education is not the answer, if it ever was, for rising income inequality.  Income inequality within the class of highly educated workers has been increasing dramatically.  Skill differences are not responsible for rising inequality.  Other factors are the more important cause of rising income inequality.

If we accept Krugman's analysis we are left with a nagging social question.  How will we retain a democratic society with a shrinking middle class?  He does not see an answer to that question without government programs that redistribute income.  Redistribution programs have been under attack in developed countries.  We are told that they are not affordable.  Taxes would have to be raised on the super-rich in order to maintain a middle class society.  If we increase the tax burden of the rich they will leave the country or stop working.  They like things just the way they are today.  They like a system of democratic government in which the super-rich can purchase politicians, and government officials that protect their interests. 

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