Paul Krugman has elevated his “job creators don’t matter” blog post to an op-ed with some changes that I think strengthen his argument and also implicitly acknowledge the correctness of the criticisms I made.
First, he substantially narrows the focus of his point from the top 1% to the top .1%:
If anything, however, the 99 percent slogan aims too low. A large fraction of the top 1 percent’s gains have actually gone to an even smaller group, the top 0.1 percent — the richest one-thousandth of the population.
Having narrowed his focus, he makes the “job creators don’t matter argument from his blog post:
Well, aside from shouts of “class warfare!” whenever such questions are raised, the usual answer is that the super-elite are “job creators” — that is, that they make a special contribution to the economy. So what you need to know is that this is bad economics. In fact, it would be bad economics even if America had the idealized, perfect market economy of conservative fantasies.
After all, in an idealized market economy each worker would be paid exactly what he or she contributes to the economy by choosing to work, no more and no less. And this would be equally true for workers making $30,000 a year and executives making $30 million a year. There would be no reason to consider the contributions of the $30 million folks as deserving of special treatment.
Then acknowledges and agrees with the argument I made that marginal product is likely to be higher than compensation for many top earners:
Still, don’t some of the very rich get that way by producing innovations that are worth far more to the world than the income they receive? Sure, but if you look at who really makes up the 0.1 percent, it’s hard to avoid the conclusion that, by and large, the members of the super-elite are overpaid, not underpaid, for what they do.
But, having narrowed his focus to the top .1% rather than the top 1%, he argues that the contributions here are largely CEOs and financiers who do not create more value than they are paid.
So it fair to read what Krugman has and hasn’t written as an acknowledgement that the bottom 90% of the top 1% (i.e. those above 99% but below 99.9%) are indeed job creators, many of whom create more value than they are paid, and that therefore we should worry about taxing them at 70%? It seems so to me.
To turn things around, is my above non-criticism of Krugman’s narrower and substantially more modest argument an implicit acknowledgement that he is correct? I think people in the segments of finance and CEOs that Krugman focuses on are less likely to be creating value high paid individuals overall. But what percent of the financiers are venture capitalists? What percent of the CEOs are like those running Google, Apple, and Netflix? The value created by some of these people is massive, and I think the burden of proof that they are on average getting paid more than the value they create is pretty high. I have not seen anyone convincingly overcome that burden of proof. You’re certainly not going to find it in the Diamond and Saez paper Krugman cites, despite the fact that it is of first order importance to the question they’re seeking to answer.