MONEY

Krugman’s economic nostalgia

Nostalgia for the 1950s started kicking in even before the next decade had drawn to a close: Sha Na Na, you may recall, was one of the headline acts at Woodstock. But most of those who pine for those particular good old days–besides retro designers and fans of Grease–have tended to come from the conservative end of the spectrum, from those who see the 60s as the beginnings of America’s end.

But recently, some on the left have begun making sympathetic noises about the age of pre-tubby Elvis. Economist and New York Times pundit Paul Krugman, in his book The Conscience of a Liberal, harks back to his boyhood in the 50s, when, he notes, our country was a lot more egalitarian than it is now, when blue-collar workers made solid middle-class wages and there were no hedge fund managers raking in billions a year. “Middle-class America didn’t emerge by accident,” Krugman writes. “It was created by what has been called the Great Compression of incomes that took place during World War II, and sustained for a generation by social norms that favored equality, strong labor unions and progressive taxation.”

In a provocative white paper (recently excerpted in
Reason
magazine, libertarian think-tanker Brink Lindsey takes on what he calls Krugman’s “Nostalgianomics.”

Lindsey, a top researcher at the Cato Institute, concedes that the 50s were, in many respects, golden years for the middle class. But, he goes on to argue, the shared prosperity of those years rested on some exceptional circumstances, such as steep declines at the top end of the income spectrum caused by the Depression, rapid growth in demand for low-skilled labor, and a quick increase in the supply of skilled workers. (It also didn’t hurt that in the early post-war period our biggest potential global competitors, Europe and Japan, had been devastated by the war.)

And Lindsey goes on to argue that the “social norms” of those years weren’t all as warm and fuzzy as Krugman suggests. The economic consensus of those days, Lindsey says, was built on market cartels that limited competition to favor producers over consumers. “The restrictions on competition,” he writes, “were buttressed by racial prejudice, sexual discrimination, and postwar conformism….” These restrictive social norms were ultimately overthrown by the cultural revolutions of the 60s. “Doing your own thing” meant greater individualism, and, inevitably, this individualism led to greater inequality.

In other words, Lindsey suggests, you can’t go back to these “golden years” without rolling back some pretty hard-won social gains.

Blogger Matt Yglesias argues that Lindsey’s attack on Krugman seems “silly” at best. “I’ve read Conscience of a Liberal,” he writes, “and it’s not as if the book ends with a call for the return of comprehensive regulation of airline fares or the re-establishment of the AT&T monopoly.”

That’s true. And indeed, though Lindsey would hardly support it, you could reduce inequality in a big way (without bringing back a single regulation) by simply taxing the rich more. But Lindsey’s bigger point stands: The 50s really aren’t worth bringing back, even if we could. As Lindsey put it when I spoke with him for an upcoming MONEY piece: “Nostalgia’s rarely a good guide to policy making. “

–David Futrelle

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