Just as a mind is a terrible thing to waste, getting a clue is a precious thing. However—and this is important—it is not enough to get the clue. One must also follow through and pursue the clue. The vast majority of people never get a clue. Among those who do, there is rarely any follow-through because doing so invariably requires a major shift in a person's world view. It will almost always be the case that the clued-in person will discover that his life and self-created identity are fraudulent!
So we are forced to conclude that the clue which Paul Krugman appears to have received in his December 12, 2012 column Robots And Robber Barons may not "stick" in the way we would like to see. My first hint that Krugman had gotten a whiff of the truth came in his follow-up note Human Versus Physical Capital.
Our discourse on inequality has been dominated for decades by issues of education and talent — and for what were good reasons at the time. There was a big increase in the college premium in the 1980s and to some extent in the 1990s — but since then, not so much...
Meanwhile, the people at BLS have sent me an update of their labor share calculations:
The labor share of business costs (labor income, benefits) since 1947. The diminishing share is obvious in the data. The decline started in the early 1980s, and after a brief upsurge in the early 2000s, the decline has accelerated greatly over the last decade.
And now, here's that all-important clue—
So the story has totally shifted; if you want to understand what’s happening to income distribution in the 21st century economy, you need to stop talking so much about skills, and start talking much more about profits and who owns the capital.
Mea culpa: I myself didn’t grasp this until recently. But it’s really crucial.
Krugman has discovered the evils of Capitalism! Guess what? — it's not a perfect system! There are winners and losers. (Workers are always the losers.) One can only presume that Krugman thought up to now that economies grew and grew, and everybody benefited, including labor—a win-win situation, even if not everybody benefited equally. Not so!
If Paul were to follow this clue to it's natural conlusion, he might conclude that economic Progress is an illusion. His entire world view would lie in ruins, his life a shambles.
And just to rub it in, let's look at this chart, which shows the labor share and corporate profits on the same graph.
The labor share of income versus corporate profits, 2000-2012. Source
If you want all sorts of details about labor shares, rising inequality, the alarming U.S. GINI index reading and all the rest, read the Cleveland Fed's Labor's Declining Share of Income and Rising Inequality (September 25, 2012). Krugman must have missed that one.
A clue is a fragile thing, as I explained in the introduction. In almost all cases, if a person gets a clue, the full import of that clue never truly sinks in. Will Krugman go with the clue? Because if he does, if he chooses to ride that Clue Train, it could be next stop Socialism!
And if Paul gets really ambitious and rides that Clue Train all the way to the end of the line, the poor bastard might end up like me, a poor blogger with relatively few readers and no friends. Krugman would have to give up his academic appointment at Princeton, his Nobel Prize, his weekly column at the New York Times, and all the other perks that give his privileged life meaning. He might die penniless and alone.
So don't look for Paul to follow-through on that clue any time soon.